Just as the early end of winter and its unseasonably warm weather demonstrated nature’s fickle temperament, so, too, do the amazing winds of April. Here in Michigan we have had a tornado in the tiny town of Dexter that wreaked havoc, but nothing like the hundreds of storms that ravaged much of the Midwest this weekend.

Still, I did note some metal lawn furniture being blown across the deck, so the winds have yet to die down. A foul April wind seems to be blowing through Wall Street, as well. Of its thirteen trading days, ten have been decliners. And after failing to produce any 1% volatility days in the first quarter, April has already spawned four.

Since April has generally been, as reported previously, a positive month in market history, the recent decline has certainly sapped the momentum from the market rally we enjoyed in the first quarter.

Most of the market indexes here in the US have slipped below their 50-day moving averages. This joins the downside breakthroughs of the average that had already occurred in the market indexes of virtually all of our trading partners around the world.

While Spain’s finances moved closer to center stage as a cause for the recent market weakness (and the claims of fraud in the reporting on the austerity of budget moves there calls into question the present government’s ability to deal with Spain’s problems), the main actor still seems to be our economy. In the last month, over 70% of economic reports have failed to meet expectations.

As Lance Roberts from Streettalk Advisors reports:

This resurgence of economic weakness is only just beginning to appear in the fabric of the various manufacturing reports. The Chicago Fed National Activity Index (a broad measure of 85 different data points) has declined from its recent peak in December of .54 to .33 in January and -.09 in February. The ISM Composite index (an average of manufacturing and non-manufacturing data), Richmond, Dallas and Kansas Fed Manufacturing indexes all posted declines in March.

http://www.zerohedge.com/news/guest-post-return-economic-weakness

Mr. Roberts attributes much of the weakness to weather-related issues. Delving into the arcane sciences of seasonal adjustments employed by the federal government in making its economic reports to the nation, he believes that the premature warm weather inflated employment numbers earlier in the year and that the reverse effect is occurring now.

Whatever is the case, I note that Mr. Robert’s Streettalk Advisors’ own Composite Economic Indicator is demonstrating the same weakness as those authorities cited.

Today’s economic reports were mixed as worse-than-expected news shook manufacturing and home builders, while retail sales handily bested expectations (though falling short of February’s numbers).

While the new earnings reporting season has been doing its best to support the market, so far the better-than-expected results have had little effect on the level of market pricing. So far, 24 companies have filed their first quarter results and over 70% have beaten expectations. Their over-2% gain on the news is encouraging as we plunge deeper into earnings season; however, with key components like Wells Fargo, Google and JP Morgan reporting better numbers but still falling, better-than-3% predictions can be dangerous.

The one index spared so far from a dip below its 50-day moving average is the tech-heavy NASDAQ. But with nearly 20% of the index in Apple, is that likely to continue? The so-called “only stock you need to own” has been falling precipitously for four days and today appears likely to be a fifth.

Normally, in times like these, I find refuge in a contrarian point of view. While I think that we are nearing the point where we could bounce back, we’re not yet at levels where I would say it is inevitable. Here are two of my favorite indicators. You can see that bullish expectations and the number of stocks under their 50-day moving average are nearing levels where a turnaround has occurred, but we are not quite there yet.

Yes, April’s winds continue to blow and this three-year stock market rally is certainly showing signs of age. However, so far, historical levels that have correctly called prolonged downturns in the past have not appeared on most indicators. It still appears that we are in a gusting trading zone where a renewed swing to the upside remains possible.

All the best,
Jerry