OPEX is upon us and it is seasonally a bullish week. After 3 weeks down buyers were eager to buy the Thursday before OPEX week low and rushed in with an out of the gate ramp that got everyone bullish again by close only to be sorely disappointed if they held into Friday.

The proximate cause for Thursday’s ramp: Negative retail sales. Nothing gets this market more excited than bad news after all. For three months in a row we’ve had negative retail sales, yet each time this news has been greeted with a rally. Why?

Money Momma Yellen of course as she is back on tap next week and all the king’s men are sitting beneath her throne waiting for just one word to emerge: Patient.

Yes price discovery has become this silly and banal. Central banks continue to be the singular key driver of price discovery. Companies appear clearly concerned about future rate raises as the frequency and size of buyback announcements has taken on a furious pace.

In February alone we saw over $100 billion in buyback announcements. This past week alone $80 billion, with $65 billion from the financial sector.

Just wow. All loading up their balance sheets with debt as fast as they can to squeeze the most out of a stone. And be clear: Most of these CEOs will not have to deal with the ultimate consequences of balance sheets laced with debt. No, they’ll either get laid off with a golden parachute during the next major downturn, or they just lay off people by the thousands when the going gets rough. But for now they reap the benefits. It’s a ghastly business, but it makes total sense from their perspective. Hence the gold rush now while they can.

But is it really a gold rush? Let’s look at some hard, cold facts:

Following the previous two times the Fed stopped QE things turned sour quickly and QE3 had to be introduced. Now the US Fed stopped QE3 last October and we’ve had negative retail sales in December, January, and February. Coincidence? Most pundits like to blame the weather, but I’m pretty sure America has had a long history of winters with positive retail sales. No, there’s something going on besides the weather and it’s not quite apparent yet.

But the Russell was so bullish this week you say? Tech has been on a tear you say? It’s just been a small pullback, let Yellen say patient and off to new highs by OPEX. Earnings will be great by Q4 after all. Right?

It could well be, but it’s all a matter of perspective. Let me give you some. Last July markets made new highs and everyone was super bullish. Markets have made several new highs since then, so this is a super bull market right?

Not really. Look closely:

The $SPX, the Dow, and the Russell are barely up 3-4% in the past 9 months. The super bullish steam engines? The dollar along with Japan and Germany. All up 20-24% since then. Yes the Nasdaq is up over 10%, but let’s please not fool ourselves. Most of that rise is due to one stock only: $AAPL which is up 34% since last July.

No the real story is this: Japan and Germany have QE, the US does not. Full stop. And QE is destroying yields and currencies and is forcing money into equities at a frightening slope.

Here’s the #DAX versus the Euro year to date:

Looks impressive on paper, but viewed in US dollars and the #DAX’s ramp is a lot less impressive:

The US? Negative on the year mostly and were it not for $AAPL being still up 13% on the year the Nasdaq would likely be negative as well:

No, things are not as bullish as they are advertised in general. But be clear, nothing really bad has happened yet either. Markets are still within a well defined upward channel and no real fear is apparent, even during this past week’s volatility with the $VIX barely moving about:

And this lack of fear may spell more trouble ahead. We are watching several indicators that outline the risk for further downside risk:

This week the $NYAD put in a negative print of over 2000. Four of the last five times this happened further downside was in the offing:

The $NASI is on a sell signal:

The $NYSI is far from oversold:

And the $CPC ratio is creeping north of 1.2. The record is mixed, but less of a bottom signal than one might think:

No nothing here suggests a solid bottom is in place. And so the Fed meeting this week is a critical driver of what happens next. In the meantime the $SPY is stuck between two unfilled gaps:

Will Yellen remove the word patient? Well, why would she? Would she ever do anything to upset markets? In fact, what has she done since she took over from Bernanke? Nothing really. QE ending was already put on the agenda while Bernanke was in charge. Who considers raising rates with 3 consecutive months of negative retail sales? Not the super dove and the economic surprise index gives her the ammunition to keep the language in if she so chooses:

The other big issue: The US dollar. Its strength, courtesy of global QE programs, has now become a major headwind:

The bond market certainly doesn’t seem to rush in on the idea that rate raising is on the agenda any time soon:

No clearly Yellen can let markets fly again this week, but downside risk very much remains, especially if she does the unthinkable. Then things could get ugly fast.

Let’s assess the downside risk.

$SPX monthly with a double top and a negative MACD cross-over:

As you can see the close of this month is becoming fairly critical from a charting perspective. The weekly negative divergences remain very pronounced:

A revisit of the weekly 50MA remains the first target of any serious pullback with the 100 weekly MA being the next key support layer underneath. It’s an attractive target not only per historic precedence, but does match up nicely with both daily and weekly charts.

On the weekly it would represent a move into the lower weekly Bollinger band, but keep the trend intact:

On the daily chart a move below the February gap fill, the 150MA and the 200MA into the 1980’s would present an opportunity so get some solid fear going with RSIs into the low 30s or below:

Whether any of this happens of course seems entirely dependent on:

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