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Holiday Volatility Means Caution for Long Side of Natural Gas

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But if the breakout holds above the downtrend line, it will turn into bullishness.

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Summary of Yesterday's Notable Technical Developments

Bonds ended the day flat Wednesday after initially trading higher in the morning; yields remain just below our initial target of 3.779%.

Stocks finished higher Wednesday, with the NASDAQ once again leading the way. A key level to watch is 2271.48; if the NASDAQ can close the month above that level, it will have very bullish ramifications for the market.

Commodities finished nicely higher for the day Wednesday opening up the possibility that the correction tied to the US dollar's recent rally may have run its course.

The US Dollar Index
closed lower for the first time in a week yesterday and continued lower overnight (now down 1% from its recent high of 78.45) sending both stocks and commodities higher both here and abroad.

Overnight and early morning: Asian and European markets were mostly higher overnight and so far this morning. US equities have opened slightly higher this morning, responding positively to economic data released earlier this morning. The US Dollar Index is lower, giving a boost to commodities in general at the start of trading.

Market Internals:
(Figures are rounded)


Critical Market Components

S&P 500: the S&P finally edged out of its "rectangle" consolidation pattern to the upside Wednesday; that it barely did so and that it happened on such light pre-holiday volume has to be considered, but it happened. Near-term support is now the breakout point of 1119 with more substantial support coming in at the 75-day moving average of 1079.39; the next meaningful resistance is 1139 (a convergence of Fibonacci levels).

NASDAQ: the key monthly closing level is 2271.48 (please see NASDAQ chart); a monthly close above that level will lead to new upside projections of at least 10% to 25% higher. Support below that level is the recent breakout point at 2212.49. The next meaningful resistance doesn't come into play until the 2340 to 2350 range (horizontal line resistance and a possible Fibonacci projection area).

Dow Jones Industrials: the Dow is the one major index still stuck in a trading range as it appears to be getting weighed down by the old-line blue chips and the financials; support comes in at its rising trend line at 10,250; resistance at 10,507.59 on a weekly close remains unchanged.

10-Year US Treasury Yield: rates remained just below my initial target as bonds failed to hold on to yesterday morning's rally; support remains at the horizontal line at 3.603% (December 15 close); resistance is now the 3.8% to 3.9% range -- the wave iii of 5 target.

Commodity ETF (DBC):
the DBC finished just below minor resistance at $24.31 with major resistance at $25 looming just above that level; minor support at the 80-day moving average at 23.38 with major support close below that at the horizontal line at around $23.

US Dollar Index (DXY): short-term support (previous resistance) of 77.47 may be tested today as the dollar appears to be digesting its recent gains; short-term resistance (horizontal line created by June's closing low) of 78.44 was touched Tuesday; the intermediate-term target is the 81 to 83 area.

Semiconductor Index (SOX): no change to support and resistance for the SOX after Wednesday's action; the new target on the upside is now at 366.52 (Fibonacci projection) with a max upside of 384.28 (bottom of first wave lower from July 21, 2006); horizontal line support exists at 332.11.

Bank Index (BKX): the banks continue to be a drag on equities and a major reason to be skeptical about the market's recent advance; critical support exists at 41.62; staunch resistance at 44.82.
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No positions in stocks mentioned.

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