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Stock Market Rally Fizzles into Close

James Hyerczyk from ForexHound.com at 12/29/09


U.S. equity markets started the day with a firm tone, but the rally fizzled into the close. Although the markets managed to finish higher, the lack of activity because of the holiday week, caused buyers to pull bids, sending the indices lower.


The overnight strength in the global equity markets spilled over to the U.S. markets on the opening.  Demand for higher risk rose because of concerns over U.S. debt.  With new Treasury debt being issued this week, foreign investors are looking for higher returns. The inability to follow-through to the upside under thin trading conditions encouraged traders to back off from the highs slightly.


Treasuries finished lower once again. Demand for higher yielding assets and a weaker Dollar helped lean on March Treasury Bonds and March Treasury Notes.  The T-Bonds closed below a retracement level at 115’08, indicating further weakness is likely.


The rally this morning in February Gold failed to hold and gold finished slightly lower.  The inability to drive the Dollar lower may have been a factor.  Thin trading conditions and the lack of buyers are most likely the main reasons behind the turnaround. The key to sustaining a rally in this market will be the market’s ability to hold above an old 50% level at $1107.40.  The current chart pattern suggests a rally to $1151.30 is possible over the short-run if $1107.40 can be regained on a closing basis.


March Crude Oil surged to the upside this morning after taking out a .618 retracement level at 79.27, but could not finish in a bullish position above this price.  Upside momentum is building which could drive this market to the last main top at 81.52.  The failure to hold 79.27 indicates a test of 77.99 is likely.  Buyers will have to come in at this level or this market could collapse back to 76.33.


The U.S. Dollar traded most of the day in a range and finished lower.  With the lack of major economic news this week, global investors were forced to worry about another round of U.S. debt.  Throughout the week, the Treasury is going to add to its already massive debt pile by another $118 billion. 


Aside from the debt worries, trading is thin and lifeless ahead of the New Year holiday. One can only speculate as to where the Forex markets want to go, but without major player participation, large movements are expected to be muted throughout the week. Technical factors could drive the Dollar lower because of overbought conditions.  Chart patterns indicate there is room to the downside before the Dollar hits meaningful support.


The March Euro finished higher.  A new main bottom was formed at 1.4217.  The chart pattern suggests that upside momentum may be building for a possible run at 1.4680 over the near-term.  Concerns over U.S. debt issues are encouraging traders to lighten up their short Euro positions.


The March British Pound is appears to be building a small support base.  The lack of fresh negative news has led to the absence of sellers.  Watch for a short-covering rally if 1.6022 is penetrated.


The March Japanese Yen traded inside of a tight range but managed to eke out a small loss. Downside momentum is slowing which makes this market vulnerable to a short-term correction.  The daily chart pattern suggests a possible pull-back to 1.1024 over the near-term. Investors seem content with holding this market in a range until after the first of the year when fresh economic data will be made available.


The old bottom .9675 appears to be forming short-term resistance for the March Swiss Franc.  If this resistance fails, this market could accelerate to the upside.  The current pattern suggests a rally to .9806 is possible over the near-term.


The March Canadian Dollar closed over a key retracement level at .9574. This action triggered an acceleration to the upside. The next upside target is .9609. A break through this level will reaffirm the uptrend.

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