Why the Market Warrants Caution
We're in early stage 4 -- bonds are falling, stocks are faltering, and commodities are still rising.
Summary of Yesterday's Notable Technical Developments
Bonds finished lower for the third straight day; the 10-year Treasury yield tested resistance at 3.58% but managed to close below this level as traders flattened out going into the weekend. Bonds appear weak following last week's auctions. Expect yields to move higher this week.
Stocks finished last week in mixed fashion with a bullish close above 10,450 for the Dow and a bearish non-confirmation from technology as semiconductor index failed to hold above the 337-339 area.
Commodities continued their weak action Friday as the dollar strengthened. Gold is nearing the 1,100 level, which should be a good re-entry point for longs. Crude oil appears oversold and is due for a bounce at some point; maybe this will give commodities a temporary lift.
The US Dollar Index continued its recent rally, but stopped just shy of closing above resistance at 76.58. Expect the DXY to eclipse this level and move higher this week.
Critical Market Components:
S&P 500: On any real pullback, the first meaningful support will be the ascending 75-day moving average (currently at 1069.20); proving to be stubborn resistance is 1113.69; possible target of 1139 to the upside on a breakout; skeptical about rally on light volume and muted market internals.
NASDAQ: Support on a very short-term basis is at 2113.99; resistance close by at 2203.78 (2009 high); possible upside to 2231 on a breakout; NASDAQ assuming leadership again recently.
Dow Jones Industrials: Support at 10,197.47; resistance revised up to 10,507.59 on a weekly close; 9,712 is next target on the downside on any break of support; look for possible seasonal window dressing here as we close out 2009.
10-Year US Treasury Yield: Horizontal line support at 3.487%; resistance now 3.579% on a closing basis; for the current wave (iii), upside target in the 3.78% to 3.88% range.
Commodity ETF (DBC): Support at the 80-day moving average at 23.26; substantial resistance at 25; commodity ETF being dragged down by the ugly action in crude oil -- the rest of the complex has pulled back, but not as bad.
US Dollar Index (DXY): the DXY has horizontal line support at 75.66 now; resistance at Friday's high of 76.58 (also touched last night in trading); intermediate-term target is the 80 to 81 area; the DXY is clearly in a short-term uptrend so use every countertrend move to buy UUP and/or to lighten up on "risk assets" like stocks and commodities.
Semiconductor Index (SOX): Support at the weekly uptrend line at around 320; resistance is a weekly close at 338.58 (SOX failed to hold a breakout attempt last week); a breakout above resistance would lead to an upside target of 379 to 385; SOX really trying to make the breakout happen -- if it succeeds, don't fight it; but don't anticipate that.
Bank Index (BKX): Short-term support very nearby at 42.99; staunch resistance at 44.82; next support on a breakdown at 41.62; the banks are stuck in a trading range after breaking their uptrend line that began in March.
Crude Oil: Very minor support at 68.40; significant support is nearly 4% lower at $66.06; resistance is now the November 27 low at 72.39; more short-term selling is likely in crude as it works its way toward "line in the sand" support at $66.06.
Gold: Short-term support is at the uptrend line which currently comes in at around 1100; short-term resistance is Friday's high at 1143.40; target entry back into gold is the uptrend line at around 1100.
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