Technical Factors Could Trigger Stock Market Rally

James Hyerczyk from ForexHound.com at 01/28/10

 

Stock indices could rally today following yesterday’s closing price reversal bottom. A friendly Fed statement and an upbeat speech from Obama could be the catalyst behind this rally.  Investor confidence seems to have been restored which has once again generated interest in higher risk assets.

 

The March E-mini S&P 500 has formed a range between 1148.00 to 1078.50. This makes 1113.25 to 1121.50 a potential upside target.  The charts are also indicating a possible rally to 1842.00 to 1855.50 in the March E-mini NASDAQ and to 10371 to 10445 in the March E-mini Dow.

 

Demand for higher yields is pressuring the March Treasury Bonds and March Treasury Notes overnight. Yesterday’s Fed report signals that it is getting closer to hiking interest rates.  The news that the Fed is going to end its quantitative easing program on schedule at the end of March could put upside pressure on yields. Tuesday’s closing price reversal top which started inside a major retracement zone is helping to pressure the March Bonds. All indications are for a possible break back to 116’06.

 

February Gold dipped lower overnight, but buyers stepped in when the Dollar weakened. The trend is up in the Dollar which should keep pressure on gold, although oversold conditions make this market ripe for a short-covering rally back to $1119.10.  A break under $1075.20 could trigger an acceleration to the downside.

 

March Crude Oil found support overnight ahead of the December bottom at 72.53. The test of this price encouraged shorts to cover positions while attracting bottom pickers. The fundamentals are still bearish because of low demand and higher inventories. Renewed interest in higher risk assets could trigger a short-covering rally however.  The charts indicate there is plenty of room to the upside with 78.99 a potential upside target.

 

The U.S. Dollar is trading flat with a slight bias to the downside after yesterday’s upbeat Fed statement and last night’s State of the Union address from President Obama.

 

Traders are reacting to the Fed’s statement calling for a “moderate” economy rather than a weak economy. President Obama’s call for a jobs plan and political unification is giving investors confidence to take on a little more risk.

 

Technical factors may also be playing a major role in the developing weakness in the Dollar since many markets reached oversold status after nearing old bottoms or major retracement levels.

 

Today’s Durable Goods and Jobless Claims Reports should offer a little more insight into the condition of the U.S. economy.  Durable Goods are expected to be better at 1.6%. Jobless Claims should show a seasonally adjusted increase of 36,000 to 482,000.

 

The March Euro continued to weaken overnight after taking out stops under the psychological 1.40 level. Regaining this level will be a sign of strength, but the trend will not turn to up until it crosses 1.4194.

 

The British Pound continues to build a support base with a bias to the upside. Although the U.K. economy showed weakness earlier this week after it was reported the GDP rose less than expected, investors seem confident that the economy has turned the corner.

 

The March Japanese Yen is trading lower overnight following the friendly news from the Fed and the upbeat speech from President Obama. Technically, this market tested a major 50% level at 1.1227 which brought in fresh sellers and triggered a profit-taking break.  The current chart pattern suggests a possible retracement to 1.0952 to 1.0888.

 

Oversold conditions and profit-taking is helping to support the March Canadian Dollar. Short traders finally gave up their positions after a key resistance angle failed overnight. Demand for higher risk assets, such as equities and commodities, is also helping to drive the Canadian Dollar higher. Higher stocks, gold and crude oil could support a rally today. The chart indicates a correction to .9566 to .9617 is likely over the short-run.

 

Overnight, the March Swiss Franc continued its down move with a trade through the December low at .9522.  A new main top has been formed at .9647.  This market is rapidly approaching oversold status and could begin a correction at any time. Watch for a closing price reversal to signal the formation of a bottom