Monday December 14, 2009 - 18:12:19 GMT
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Stock Holding On to Modest Gains
U.S. equity prices traded sharply higher overnight but failed to attract fresh buying after the strong opening in New York. This has been a common pattern, however, since the rally began in March. Traders have been reluctant to chase this market higher, and have shown more confidence in letting it come to them. Mutual funds have been very active buyers on Mondayâ€™s recently. This may have been the reason the December E-mini S&P 500 stopped at its low at 1108.75. If the funds still have orders to fill then look for a late session surge to the upside. The S&P has an upside target of 1122.00.
March Treasury Bonds and Treasury Notes are trading sideways-to-better today. Since the Dubai credit news broke in late November, fixed income traders have been building a risk premium into the yield. Now that Abu Dhabi has helped out Dubai, T-bond and T-Note traders have slowed down the rate of decline. Watch for the start of a short-covering rally if debt concerns continue to improve.
February Gold is trading better because of the weaker Dollar. Last weekâ€™s low at $1110.20 as well as a 50% price at $1107.40 is holding as support. A sharply lower move in the Dollar this week could drive this market back to $1169.00.
March Crude Oil has regained the .618 support level at 73.63 and is now in a position to post a daily closing price reversal bottom. Firm equity markets and a weaker Dollar are helping to drive up demand for commodities today. Speculators are needed, however, to trigger a rally to the next resistance level at 75.53.
The U.S. Dollar is trading sideways-to-lower at the mid-session after backing off a two-month high versus a trade-weighted basket of currencies overnight. The news that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by the state-owned Dubai World is acting as the catalyst behind todayâ€™s weakness. This event is helping to alleviate one of the concerns which drove traders into the safety of the Dollar last week, the others being downgrades in Greece, Portugal and Spain. The overnight selling pressure is a sign that traders have become less averse to risk. This could help maintain a strong tone in higher risk assets today.
Another reason for the lackluster trade is the fear of stepping out in front of this weekâ€™s Federal Reserve Open Market Committee meeting on December 16th. Since its last meeting in November, the U.S. unemployment rate has dropped to 10% and retail sales have risen above expectations. Job losses and the lack of consumer spending are two key determinants studied by the Fed. Traders are looking for the Fed to look at these two reports and perhaps issue a more hawkish statement. A dovish statement will be a surprise which is not likely to bode well for the Dollar.
The March Euro is up slightly after bouncing off a 50% price at 1.4594. The initial thrust in this market overnight was provided by the surprise news out of Abu Dhabi regarding its partial bailout of Dubai World. Gains have been muted, however, by the news that Euro Zone industrial production fell for the 18th month while employment extended its decline.
The March British Pound rebounded after a bout of early weakness this morning. The news out of Dubai did not helping the British Pound. Cable traders have enough on their tables than to worry about sovereign debt issues in the Middle East. The U.K. has budget and debt issues of its own.
The March Japanese Yen is being underpinned by traders reversing their short positions initiated last week because of debt concerns in Dubai. The chart indicates the possibility of a rally of this currency into 50% resistance at 1.1407 to 1.1497.
The March Swiss Franc is trading slightly higher in light trading. Support is being provided by last weekâ€™s low at .9651. Strength is being indicated by this currencyâ€™s ability to regain the old main bottom at .9690. This is usually a sign that conditions are oversold and that the last drive lower was most likely stop driven rather than fresh selling.
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