Short-Covering Rally Triggers Late Surge in Equities
equity markets finished higher after a mid-session break threatened to take the
markets lower into the close. Stock indices reversed earlier weakness on the
heels of a better than expected Chicago Purchasing Managers Index, but failed
to maintain the upside momentum sending them lower at the mid-session.The catalyst behind the mid-session weakness
appears to be end-of-the year profit-taking.The lack of selling pressure into the close triggered a short-covering
rally which took the stock indices higher for the day.
March Treasury Bonds closed higher. End-of-the-year position
evening has been the catalyst behind the slight rise the last two days.
Technically, holding above 115â€™08 is friendly and could trigger a
short-covering retracement to 117â€™01 over the short-run.Longer-term, the threat of rising interest
rates, oversupply of debt and a strong stock market should help to maintain
downside pressure on the Treasuries. Despite the increase in Treasury debt this
week, traders have had very little reaction to this potentially bearish news.
February Gold closed lower for the day, but inside of a key
retracement zone at $1094.80 to $1090.20. The stronger Dollar pressured
February Gold this morning, but the turnaround in the Dollar at the mid-session
led to a short-covering rally in gold. The current chart pattern suggests that
the main trend will turn up when the market crosses $1114.50.
March Crude Oil closed higher following a report which
showed inventory had dropped.Bullish
traders are trying to push this market higher in anticipation of greater demand
because of the improving economy.A
weaker Dollar could trigger more upside action.
The U.S. Dollar finished higher after a choppy trading session
but well off its high. The Greenback opened higher after global equity markets
weakened following an overnight drop in demand for higher risk assets. The
Dollar surged to its high for the day against most major currencies after the
release of a better than expected Chicago PMI report.
This report signaled that the U.S. economy was recovering from
the recession.After the early morning
rush to a new high, buying fizzled as traders began to take year-end profits.
The Dollar finished higher, but downside momentum is building which lead to a
lower opening tomorrow.
The March Japanese Yen accelerated to the downside, taking
out the late October bottom at 1.0847, on its way to a three-month low.Concern over a potential bankruptcy filing by
Japan Airlines is putting pressure on the Yen. Stories are also circulating
AA rating is in danger of being cut if the country does not shore up its debt
situation.Finally, traders are also
factoring in potential action by the Fed in 2010 that will lead to higher
interest rates and a stronger Dollar. Pre-holiday profit-taking triggered an
intra-day correction but the market was able to hold on to its gains. Continue
to look for the Japanese Yen to weaken unless there is an unexpected shift in
A contraction in Euro Zone money supply pressured the March
Euro early in the trading session. This news was unexpected but could cause
issues in the short-run as it could lead to a credit crunch.This is important to note because of credit
problems in Greece, Spain and Portugal.So far the European Central Bank has not
offered any aid to these regions. Tightening credit conditions could mean that
the ECB may not be in a position to offer relief to these troubled regions if
problems accelerate. Going into the close, the Euro mounted a strong comeback
as profit-takers stepped in ahead of the New Yearâ€™s holiday, but still managed
to close lower for the day.
The March British Pound started out under pressure this
morning following yesterdayâ€™s reversal to the downside, but turned around
shortly after the opening to close higher for the day. Investors are worried
that the economy will remain weak over the near-term while the U.K.
wrestles with a huge debt burden. The lack of major news pointed toward technical
factors as the catalyst behind todayâ€™s the turnaround. Relative Strength and
the Stochastics Oscillator indicate this market may have reached oversold
The March Swiss Franc confirmed yesterdayâ€™s closing price
reversal top at .9734 when it took out .9633.The chart pattern suggested the next downside objective was .9628 to
.9603.Intraday activity took this
market into the retracement zone where traders took profits. This helped the
Swiss Franc turn positive for the day at the mid-session. Going into the close,
buying pressure was subsiding and the market was hovering around break-even.
Weakening equity markets and lower gold helped to weaken the
March Canadian Dollar early in the trading session, sending this currency pair
into a key retracement zone at .9476 to .9435. Profit-takers decided to take
action in this zone, triggering a slight rally at the mid-session.Look for the Canadian Dollar to rally over
the near-term if gold strengthens and equities weaken.
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