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Stocks Waver after Steep Drop in U.S. Pending Home Sales

James Hyerczyk from ForexHound.com at 01/05/10


After two days of greater demand for higher risk assets drove stock prices higher, U.S. equity markets wavered most of the day following a steep drop in pending home sales.  At the end of the day, the March E-mini S&P 500 managed to close higher, but the March E-mini NASDAQ and March E-mini Dow did not fair so well. 


Technically, the closing price reversal top formed in the NASDAQ could trigger the start of a 2 to 3 day short-term correction.  The inability of the Dow to make a new move high along with the other two indices indicates a possible developing divergence in the indices.  This too may be an indication of a short-term top.


Upbeat manufacturing reports out of China and the U.S. earlier in the week have helped to buoy stock prices, but investors seem a little reluctant to get too aggressive on the long side ahead of service and unemployment reports later this week.  Usually during the first week in January, institutions and mutual funds flood the market with cash, but have been noticeably absent this year because of the late reporting of U.S. Non-Farm Payrolls.


U.S. Treasury Bonds and T-Notes finished their trading sessions slightly higher. Oversold conditions, profit-taking and position squaring are most likely behind today’s strength. A support base has formed in the March Treasury Bonds which indicates that a value zone has been reached.  The trade through the last main top at 115’29 turned the main trend to up and indicates further upside potential.  The first upside objective is a downtrending Gann angle at 116’07.  A minor bottom has been reached in the March Treasury Notes which could launch a retracement to 116’24.


The strengthening Dollar helped to pressure February Gold.  The main trend turned up on the daily chart on Monday, putting this market on path for a potential retracement to $1151.30 to $1169.30 over the near term.  Today’s action indicates, however, that a break to $1102.40 may be necessary to attract fresh buyers.  Conditions will remain bullish as long as the last main bottom at $1086.60 continues to hold.


March Crude Oil traded higher overnight but backed down throughout the day as the Dollar strengthened. One-by-one a series of tops has been taken out over the past two days. These tops include 81.52 and 82.30.  The next two upside targets are 82.81 and 83.60.  Stronger manufacturing numbers are triggering expectations for a rise in demand for oil products.  Technically, Tuesday’s closing price reversal top indicates overbought conditions.  This could lead to the start of a 2 to 3 day retracement to 78.08 - 77.01.


The U.S. Dollar was able to mount a comeback after early session weakness.  A lower than expected U.S. pending home sales report helped raise fears the Fed would once again leave interest rates at historically low levels and fueled increased demand for the Dollar as a safe-haven investment. Oversold conditions also contributed to today’s rally. Today’s closing price reversal bottom indicates the start of a 2 - 3 day rally to 77.77 - 77.93.



The March Japanese Yen rallied sharply this morning following the release of the weaker housing report which showed the number of contracts to buy previously owned U.S. homes fell in November more than analysts had estimated.  Today’s breakout to the bull side of a downtrending Gann angle signals the start of a possible retracement to 1.1260.


The March Euro weakened into the close as the Dollar picked up strength.  The bigger picture suggests a move to 1.4680 is likely.  Minor resistance at 1.4503 could slow down the current upside momentum.  The weakening Euro is setting up for a pull-back to 1.4350 - 1.4319.


The main trend remains down in the March British Pound. Buyers tried to, but failed to hold the British Pound in the retracement zone at 1.6036 to 1.5988. Concerns about the U.K. economy and the upcoming election are putting pressure on the Cable.


The March Swiss Franc showed overnight strength, but New York session selling helped form a closing price reversal top after an eleven day rally. Based on the short-term range, watch for a retracement to .9640 to .9612.  The bigger picture suggests a rally to .9806 - .9873 is possible following this short-term correction.


Rising gold and crude oil prices as well as firm equity market helped to firm the March Canadian Dollar.  The main trend is up with 9741 the next up objective.  A key retracement level at .9574 is the new support.  The weak close suggests a possible break to .9476 is in the works.

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