At quarter’s end, the Federal Reserve lent out $303.5 billion in reverse repos to Wall Street banks, dealers, brokers and mutual funds, known as the “window dressing” period but as we progress into the new quarter this money has to be paid back, so the last couple of days these same institutions pegged stocks at the end of the quarter now have to pay this short –term money back again.

Now that we have a new quarter, both institutions and individual investors are now focusing in on the earning season, which is soon to be upon us.

Investors have been warned that this quarter could be a poor earnings quarter and I think the probabilities increase sharply, especially after today’s latest trade data, which showed the U.S. trade deficit widened to $47.1 billion in February, which was a bigger drag on growth than expected.

Moody’s Analytics downgraded the US GDP to just 0.2%, while the Atlanta Fed’s GDPNow was lowered to 0.4%—basically, the US economy is stalling out—which brings us back to what kind of an earnings season are we likely to see and how will the stock market react when it is already has a very overvalued P/E ratio of 22 times earnings for the S&P 500 index?

On the positive side, the ISM non-manufacturing or Service index improved from 53.5 to 54.5 as people become more active in the spring.

Technicals Support Bearish Trend

From a technical perspective, the broad market is still trading in bear market territory with the NYSE Index trading below its 200-day moving average and its 50-day moving average well below its 200-day MA. The Nasdaq Composite is also below, as well as the Russell 2000 Index. The Dow Transportation index has also slipped below its 200-day moving average, but we could see one more short term bounce heading into April 15th, should we see a rebound again in crude oil prices.

What I want you to notice is the iShare Russell 2000 ETF (IWM) fund.

I want you to look at top oscillator, the moving average convergence/divergence (MACD) and notice when this oscillator jumps above the zero line, which is about mid-February. Momentum is clearly waning now and the MACD is just barely above the zero line. A breach below zero will bring on more serious selling.

Here is the same chart, only from an intermediate-term perspective (weeks instead of days).

The MACD is still well above the zero line from an intermediate-term perspective, but the weekly stochastics are very overbought with %K at 93 and %D at 82. This suggests we should expect to see an intermediate-term top develop in the month of April, as these intermediate-term advances last about six to seven weeks before the next intermediate correction begins. Still, the bulls need to keep the MACD above zero and that may be very hard to do if the earnings come in weak again.

This is still a bearish pattern of lower lows and lower highs from one intermediate-term cycle to the next.