Here’s THE Cheat Sheet for the Trading Week Ahead

This week major indexes stopped at major resistance, and so once again, we find ourselves on the “knife’s edge,” a precarious balance between going higher and falling off the cliff.

On My Radar

Chart courtesy of StockCharts

In the chart of the S&P 500 (NYSE:SPY) above, we can see how price stopped at 1332 which is exactly the resistance level at the top of the most recent columns of Xs and Os, and we see that we still have a “bearish price objective” of 1160.

A move higher to challenge the 1340 level would indicate a breakout to higher prices with short covering and more money coming into the market, while support is at the 1250 level.

Last week offered another round of mixed news on the data front and more “Fed Speak” regarding potentially higher inflation and the possibility of higher interest rates or the end to easing ahead; this kind of talk could certainly give pause to the liquidity fueled rally of recent months.

The View From 35,000 Feet

Last week’s big news was the much ballyhooed and welcome improvement in unemployment claims and the unemployment rate which dropped to 8.8%.

The wrap up of news looks like this:

Positive:

+Unemployment claims decline

+Feb. Personal Spending rises

+Feb. Pending Home Sales improve

Negative:

-February Personal Income declines

-Jan. Case/Shiller Home Price Index declines

-March Consumer Confidence declines

-MBA Mortgage Index declines

-March Chicago PMI declines

-February Factory Orders decline

Beyond the economic data, oil (NYSE:USO) continued its climb to above $107/bbl, the highest in two and a half years, and yields on short term Treasuries rose as the “Fed Speak” turned to discussions of the possibility of  higher interest rates ahead and/or the possibility of an earlier than planned exit from QE2.

The big question here is what happens after QE 2 ends.

Over in Europe, Portugal saw its 10 year bond yield rise to 8.5%, a record since the establishment of the Eurozone, and both Fitch and S&P (NYSE:MHP) downgraded the country’s debt to just above junk as a bailout looks more and more likely.

The European Central Bank appears poised to raise interest rates as early as this Thursday, while at home the government officially runs out of money on Friday as Congress wrangles over how much to cut from spending and from where the cuts should come.

Meanwhile the war in Libya goes on and appears headed for a stalemate, no surprise there, and Japan (NYSE:EWJ) continues struggling with its nuclear accident and the ongoing nuclear, economic and political fallout of that crisis.

What It All Means

The U.S. economy appears to be improving, now to the point that Fed intervention is becoming less and less salable, and so we find ourselves at a turning point where we’re likely to find out if the recovery is, in fact, sustainable without “Big B” keeping his foot on the gas pedal.

It certainly appears that rising interest rates are in our future and that the punchbowl is running dry; those two events could mark a major inflection point going forward.

The Week Ahead

Major Issues/Themes:

The major issues and themes to watch for this week will be how/when/if Congress solves the budget debate and manages to keep the government open past the Friday deadline, European action on interest rates, and the war in Libya.  Economic data is light and earnings season “officially” begins on Monday, April 11th, with Alcoa reporting after the close.

Tuesday: March ISM Services

Thursday: Initial Unemployment Claims, Continuing Claims

Friday: February Wholesale Inventories

Sector Spotlight

Leaders: (NYSE:ECH) iShares Chile (NASDAQ:INDY) iShares India Nifty Fifty (NASDAQ:EMFN) iShares Emerging Markets Financial

Laggards: (NYSE:EWJ) iShares Japan Index (NASDAQ:NUCL) iShares Nuclear

Disclosure: No positions in ETFs or stocks discussed in this article.

John Nyaradi is the author of Super Sectors: How To Outsmart the Markets Using Sector Rotation and ETFs.

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