Improving Economy Pushes March S&P through Resistance
Signs of improvement in the U.S. economy helped the March
E-mini S&P 500 push through recent resistance at 1112.75 to turn the main
trend to up. The strong close in the Dow has this average in a position to
challenge the last main top at 10434. Strong demand for technology stocks
helped drive the March NASDAQ through the recent main top at 1833.00.
Although the indices were up overnight, it took a better
than expected economic report to set off Tuesdayâ€™s rally. The surprise this
morning was the increase in U.S. Consumer Spending to its highest level since
May 2008. This report may be signaling that consumer confidence in the economic
outlook is increasing. The ISM Manufacturing Index fell to 56.5% from 58.4%;
nonetheless, investors saw this as positive as long as the reading remains
The key to higher markets will be follow-through buying.
Investors have been shying away from buying strength so donâ€™t be surprised by
another pull-back to attract the attention of the buying crowd. Traders should
also pay close attention to the Dollar. A sharply higher Dollar tied to
sovereign debt concerns in Europe is likely to
weaken the stock indices.
June Treasury futures fell following the release of the friendly
economic reports. Trading was slow and the range was tight. Increased demand
for higher yielding assets also contributed to the weakness. All of this took
place while the June Treasury Bonds were testing a key 50% level at 117â€™23. The
charts indicate that there is room to break to at least 116â€™00.
The turnaround in the Canadian Dollar helped to turn April
Gold positive intraday, but it could not sustain the strength into the close. Upside
momentum needs to continue to build if this market wants to have enough power
to test the last main top at $1131.50. A trade through this price will turn the
main trend up. With the Euro reaching an important crossroad because of the
possibility of an EU/Greece agreement, traders should watch for a possible acceleration
to the upside if the Dollar weakens substantially.
The stronger Canadian Dollar could not help sustain the
early session strength in crude oil and this market succumbed to selling
pressure because of the weaker than expected ISM Manufacturing Index. Traders
lightened up on their long positions after the weak ISM report indicated that
crude oil demand may not be as strong as previously estimated. This market
dropped although equity markets and the Canadian Dollar were higher. This
indicates that more downside pressure could be expected over the short run.
The March British Pound plunged following reports that a
poll indicated that the minority party may win the upcoming election. Such a
move will mark the first time since 1974 that the minority party has gained
such power. Investors feel that this drastic change will stall the countryâ€™s
efforts to shore up the U.K.â€™s
debt issues.In addition, the weaker
Euro also dragged down the Pound as fear swept through the markets over the
possibility that the sovereign debt crisis was spreading to the U.K.
Heightened political pressures along with the poor economy
and the Bank of Englandâ€™s continued easing of monetary policy weighed heavily
on the Pound since early in the session when stops were hit below 1.50.Shortly after the New York opening, the British Pound found
support at a .618 retracement level at 1.4854. The successful test of this
level generated some light short-covering, but far from enough to trigger a
change in trend.
The March Euro was under pressure throughout the New York session as
uncertainty over the Greek bailout package encouraged more selling. Downside
momentum dried up as the market approached last weekâ€™s low at 1.3443. This
triggered a late session short-covering rally which helped erase close to half
of its losses.
Optimism over a possible deal between the European Union and
waned as traders grew impatient over the lack of progress toward a resolution
regarding the Greek debt crisis. A week-end report from the Wall Street Journal
citing the possibility that Germany
and France would bail-out Greece
to the tune of $41 billion failed to generate any strong buying or
short-covering early in the session. This triggered a relentless barrage of
sell order shortly before the New
York opening. Downside pressure was on the Euro until
about the mid-session when it became apparent that the recent bottom at 1.3443
was going to hold.
Mondayâ€™s action indicates that investors are getting
frustrated with waiting for the deal to be set and with Greeceâ€™s inability to make
additional budget cuts. The only thing that could turn this market around at
this time will be either a concrete resolution to the crisis or a
short-covering rally triggered by fresh foreign buying of the Euro.
The March Canadian Dollar rallied sharply higher after a
report showed that Canadian GDP grew in the fourth quarter faster than
economists forecast. Traders erased an earlier loss after the GDP report showed
the economy expanded by 5% versus pre-report guesses of 4.2%.
This morningâ€™s better-than-expected GDP report indicates the
economy has enough positive momentum to perhaps trigger a more hawkish
statement from the Bank of Canada at Tuesdayâ€™s policy meeting.This robust report could serve as notice that
the economy is expanding at a pace that would warrant an interest rate hike by
the BoC sooner than the Federal Reserve.
Demand for higher risk assets because of todayâ€™s strong U.S. equity
markets helped to pressure the March Japanese Yen. Although the range was
tight, the chart formation suggests that the Yen is poised to breakout to the
downside if it can trigger stops below 1.1174. The return of risk aversion
should underpin the Japanese Yen which could lead to an acceleration to the
upside through the recent main top at 1.1295.
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