Market Hitting Resistance, But New Highs in the Coming Week(s) a Likely Scenario

To begin the week, watch for continued consolidation/choppy action between 1570 and 1583 on the ES (M June 2013 Contract). Price will need to break-out in one direction or the other and I am favoring the downside in the short-term. I expect price to break down on Monday or Tuesday, so short positions look interesting on any failed rallies above 1580 ES. When selling does take hold, first target to the downside will be 1563-1564. If support does not hold there, 2nd target to the downside is 1546-1547. I expect one of these support levels to hold and for buying to then drive the market up to another new high in May. This should mark a genuine exhaustion point for a very extended market. And as cliche as it sounds, I expect the "Sell in May and Go Away" to play out again this year. We might have to wait a couple of weeks into May for this to happen, but I do expect to see at least a 6% correction from there. Of course we'll have to watch for pattern and price action to support this theory, but for now, that's one of my higher probability scenarios.

Signs that support this viewpoint:

• Bonds setting up for a price move higher (yields lower) in the coming weeks. TLT is looking bullish which will set up for a nice sell in equities. Watch for 120-121 (TLT) to hold as support. A continued move higher from there will support a risk-off mentality and send stocks lower.
• GDP for the first quarter came in at 2.5%. Though this is an improvement over the 4th quarter, it is below consensus estimates of 3.1% and thus is not a bullish indicator in what is an extended market.
• Bearish sentiment remains high as many investors expect a correction. This is often a contrary indicator as the crowd may continue to get squeezed. In the short-term this would support my view that new highs are around the corner. Watch for sentiment to move back into the bullish camp as a potential indicator that it "May" be time to sell the markets in anticipation of a Correction.
• Although the Transportation Index ($TRANS) has seen gains over the past 6 trading days, it remains in a downward trend since early March. $TRANS remains above fair value and could easily correct quite a bit more towards November 2012 prices. If the $TRANS is headed lower, the S&P 500 is likely to head in the same direction.  

In summary, there are plenty of reasons to speculate the potential for a correction in the markets. Just remember that the charts remain bullish and until this changes, expectations of a break of the trend are only speculation. Until then, I remain bullish in the overall picture. Time will reveal the truth.

Levels to watch on the ES (M June 2013 Contract):
Resistance above at: 1583-1584, 1589-1591, 1595-1596, 1607-1608
Support below at: 1569-1570, 1562-1563, 1547-1548