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Don't Dive Into the Healthy Dow Yet

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If you're a bear, be careful. If you're a bull, be patient.

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Summary of Yesterday's Notable Technical Developments

Bonds
Long-dated Treasuries finished slightly lower in a lackluster trading session. The benchmark 10-year note is yielding 3.82%, still in the middle of its two-week range.

Stocks Mixed on the session, stocks initially gapped higher, sold off, and then drifted higher the rest of the day. Equities traded in a narrow range with light volume. The Dow finished higher by 0.40%, with names such as Caterpillar (CAT), Alcoa (AA), United Technologies (UTX), Coca-Cola (KO), Walmart (WMT), Chevron (CVX), and Exxon (XOM) putting in strong days -- Dow tech stocks were noticeably weak. Gains may prove difficult to hold onto as disappointing earnings results and pre-announcements after the bell Monday are likely to put downward pressure on equities.

Commodities
Benefiting from the weaker dollar, commodities gapped higher along with stocks, but then drifted lower and stayed lower throughout the session Monday. Interesting that commodity prices couldn't move higher despite dollar weakness. A downside reversal in oil weighed on the group while gold provided some strength.

US Dollar Index
The DXY gapped lower on Sunday night and the weakness continued into Monday morning. The dollar index eventually stabilized after finding a bottom at 76.79 (important support on a closing basis is at 76.73). The DXY rallied off that low but still finished down about 0.60% for the day and the index is now down more than 1% this year.

This morning: Asian markets were mixed with Japan higher again, while Australia, Hong Kong, and Singapore traded lower. European markets are uniformly lower by about 1% in early trading this morning. S&P futures are trading about eight points below fair value and are pointing to a lower open for US equities this morning (as of 6:30 a.m.). The US dollar is trading higher versus four of the six major currencies tracked by the DXY, and this has the index slightly higher this morning. Risk assets have been getting hit in overnight trading and this has gold (slightly) and oil lower. US Treasuries appear to be the beneficiary of a rotation out of risk this morning.

Market Internals: NYSE
(Figures are rounded)


Critical Market Components (with ETF proxies):

S&P 500 (SPY): Short-term support is December 31 low of 1114.81. More substantial support comes in at the 75-day moving average of 1090.59. Meaningful resistance is just above Monday's close at 1146 -- a significant Fibonacci convergence level. 1156 is the next resistance above that. The SPY has corresponding support levels of 111.39 to 108.21 and resistance comes in at around 116.

NASDAQ (QQQQ): Support for the NASDAQ comes in at 2292 and then 2271 below that. The next minor resistance comes into play at 2331 (March 2007 lows) and 2339.90 just above that level. The QQQQs have support at 45.75 - 46.25 and resistance in the 48 area.

Dow Jones Industrials (DIA): Support remains at the breakout point of 10,507 with 10,450 providing additional support below that; resistance comes into play at 11,000. For the DIA, resistance comes in at 111; initial support is at 105.

10-Year US Treasury Yield (TLT used here as a proxy for longer-dated bonds): Resistance for rates on the 10-year Treasury is right here at the 3.8% to 3.9% range and support is still down at the 3.6% level. These levels translate to support for TLT at 89 and first resistance at 90.

Commodity ETF (DBC): The DBC has resistance beginning at 26.73 with 26.86 (the 50% retracement level of the wave 3 move lower that ended in March of 2009) just above that. Support for DBC is now the 25 breakout point with additional support at 24 below that.

US Dollar Index (DXY and UUP): The DXY broke below the recent trading range, but found support at 76.73. The support for UUP, the ETF proxy for a rising dollar is at 22.65, while 23.20 is first resistance.

Semiconductor Index (SOX and SMH): The SOX has short-term support at 366.52; secondary support comes in at the horizontal line at 332.11. The next meaningful resistance comes in at 384.28 (bottom of first wave lower from July 21, 2006). These levels translate to 30.31 as resistance and 28.43 and 27.50 as support for the SMH exchange-traded fund.

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No positions in stocks mentioned.

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