A rally that has largely been driven by central bankers turning dovish and a daily dose of China hopium headlines has run into trouble this morning as retail sales have stunk up the joint. Worst retail sales since 2009, immediately bringing sizable downside revisions to Q4 GDP with it.

Barclays lowered Q4 GDP from 2.8% to 2.1% on the heels of the report and more downward revisions are sure to come.

The notion that the US is immune to the global slowdown should be put to rest. Today Germany’s GDP came in at flat, with ECB rates still negative. Did I mention the macro data is frosty? I believe I did.

And these new data points are serious:

Last weekend I outlined the 2730-2760 area on $SPX as a key battle zone on the upside for this week. Yesterday $SPX hit near 2762 before reversing and is currently trading at 2739 at the time of this writing.

Battle zone indeed.

Given the prospect of a bull trap still being in purview of the historic script I just wanted to highlight some key charts I consider worth watching over the next couple of weeks into month end, as they either will further support the notion of a bull trap or perhaps invalidate the thesis.

Here goes:

$SPX monthly, note price has retagged the broken 2009 trend line, falling away from here may support the bull trap case in the sense that the rally retested the trend line and then rejected (TBD):

$WLSH versus $BKX:

Still following the 2007 script $WLSH has also tagged the broken 2009 trend line and the monthly RSI has bounced off of the middle RSI line. $BKX continues to make lower highs.

$XLI:

The industrial sector is forming a potential rising wedge underneath the broken 2009 trend line, similar to 2008. A break to the downside out of this wedge would be very bearish for the market.

$TRAN:

Just tagged the broken 2009 trend line from underneath.

So here’s the problem perhaps for bulls: To make progress on all of these charts bulls need 9? 10? weeks of straight up.

Currently we are on 8 weeks straight up in the face of deteriorating macro.

Example $RUT:

That’s a lot of hopium already.

Some other quick considerations:

$SPX quarterly:

Based on this chart calling any bear market over may be a bit premature as, so far $SPX has only seen 1 quarterly red candle, that would make it the shortest bear market in history. 2 hours on Christmas eve. Even the 2011 correction has had a couple of red candles.

No, true bear markets go on for a while longer than 1 quarter. So either this was indeed just a “glitch” quickly fixed by a caving Fed, or the real fun has yet to begin.

The $DJIA chart is an interesting one as its 2009 trend has not broken:

But its current pattern looks awfully similar to 2007/2008 as well. A retest would risk breaking the 2009 trend and then invite a move toward the .382 fib and supporting trend line below.

As of this point all of these charts and their implications remain unproven as markets remain in their rally phase during this OPEX week. But I do note the resistance zone I outlined this weekend has indeed produced a technical reaction with retail sales being the trigger. A deteriorating macro picture has so far not mattered, but as retail sales report shows: Bears continue to be more right than wrong about the severity of the slowdown. Will buyers of equities take notice?

From my perch watching the charts above will continue to be a worthwhile exercise going forward.

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