Investors need to respond to every short-term pop, says JPMorgan's Jason Hunter

So is there more trouble brewing in the charts for stocks? Let’s ask JP Morgan’s Head of Technical Strategy, Jason Hunters. Good to see you again. So what are you watching more than anything else right now to help us figure out where we might be going from here? Well, now that we step back and have seen the most bearish momentum since the fourth quarter of last year with things like the relative strength index momentum gauge falling below 50 and into bearish territory for the first time since that period. Now the important part is how the market responds to support. So the initial support for the SMP on that breakdown was you know 5000 or just below. There’s gap support there. That’s where the the short term top pattern from the last two months it measures out to that area. Now the question is does a bounce develop from their number one and if it does, is it able to get back above the breakdown levels, the 50 day moving average, the, the area where it gapped down from. So we’re looking really at 5150 to 5200 in the SMP as the key resistance now. So I think on a on a near term basis you keep a tactical bias. While you’re below that, I mean you you’re also understanding of the idea that even if we have some kind of correction directionally over the longer term it’s it’s hard to get too bared up you you would suggest because as you know Mike Santoli and others have made the case bull markets don’t typically end because the economy is too good. No. Well I mean we’re pointing to a couple of things. Number one, you know the curves been inverted for quite a while now. And even when you look at the post 1980 period when the lags of monetary policy to the market eventually rolling over and the economy getting hit there long and variable, you’re really into the average period when you look at the recession periods in that post 1980 world when the markets finally start to respond. So the one thing that we highlighted while bullish momentum has dominated and you know for me it ran me over in the fourth quarter of last year, I didn’t think the rally was going to extend nearly as far as it did. But the fact that you have curve inversion, you have low frequency trend deceleration. Now where April is going to close week, it looks like you know certainly lower than where it closed in March, you know the highest probability because March closed at the high that’s going to trigger some low frequency bear signals with an inverted yield curve. Historically that’s actually not led to good things at at best it’s continued deceleration that eventually has topped the market out and at worst it’s immediately turned the market into a bear market. So we actually think actually quite the opposite. Every time you see a short term top here, you have to respond to that, you have to hedge your portfolio. And we basically suggested in our last note was if the market did breakdown as it did in the last week and a half, you want to hedge the portfolio, put a trail stop overhead And while the momentum, yeah, it’s been strong and you know I’ve been back on my heels for the past quarter as the market surged here to this 5200 area. It can’t side of the fact that it looks like we’re late in the cycle if you’re going to use the yield curve as an indicator. And historically when you get these signals, it hasn’t led to good things. Sure. Big question obviously about mega caps. You know we’re going to get those earnings coming in a in a in a week or so and this market’s been unbelievably resilient even at times where it’s looked fragile, it hasn’t taken that much to get the train going back down the tracks again. I wonder if that’s the moment and what recent trading activity and price action within the NASDAQ 100 for example, tells you. Yeah, so. So you know, two things. Number one, what was interesting, in March, the NASDAQ and the mega cap were first to stall out. You saw this, you know, unexpected shift to cyclical leadership where small caps started to get pulled along. You saw deep cyclicals, industrials, materials, energy, financials take the lead and take the S&P higher while the NASDAQ stalled sideways. Like I said last time we were on the show, we thought that was suspicious given where the yield curve was and sure enough this it’s a catch 22, the same manufacturing data you need to support. That type of broadening of the rally is going to make the fixed income market question whether the Fed can actually ease. And we we saw a miniature version of that that self-contained dynamic unfold in the last two weeks that your notebook 475 and small caps cyclicals came under enormous pressure and you saw a bit of that rotation back to the mega caps again. But even at the NASDAQ 100, we’ve been looking at the 17,000, I think it’s 750 similar supports to 50 day moving average. The market’s broken below that you know and to as you said mega caps been the leadership. If that really struggles to regain ground, I think that’ll be the marker that the broader tide is is really starting to to turn to the downside.