Late Session Buying Spree Sends S&P 500 to New High
equity markets finished higher after treading water most of the day in sideways-to-lower
trading action. Traders seemed to be waiting for a catalyst all day. Near the
close equity markets mounted a strong surge to finish on their highs.
Thursday night, news that Chinaâ€™s inflation rate was higher
than expected, fueled speculation of a rate hike which helped drive down demand
for higher yielding assets. The lack of follow-though to the downside, however
triggered a short-covering rally which helped to boost equity prices from their
early morning lows. The March E-mini S&P 500 broke through the January top
at 1148.00. This action kept this market on pace to reach the March 12th
objective of 1156.00.
June Treasury Bonds recovered from earlier losses to close
better. Earlier traders sold Treasuries in anticipation of a possible rate hike
The inability to break -through yesterdayâ€™s low at 115â€™27 triggered a
short-covering rally near the mid-session. Technically, this market picked up
strength after regaining a 50% line at 116â€™04.This price will dictate the direction of the market over the short-run.
Holding above it means the market is discounting the Chinese news. Falling
below it will indicate a further drop to 115â€™06. If the rally continues, then
look for a retracement to 116â€™30 to 117â€™06.
The weaker Dollar triggered a short-covering rally in April
Gold. Technically this market posted a minor closing price reversal bottom. Oversold
conditions also contributed to the turnaround. A follow-through rally on Friday
could trigger a retracement to $1123.10.
June Crude Oil finished unchanged after trading slightly
weaker throughout the day. A decline in demand for higher risk assets was
behind todayâ€™s early weakness as well as overbought conditions. Technically,
this market is beginning to weaken. Trend lines are being penetrated and
momentum is slowing. The charts indicate there is room to the downside, but the
weaker Dollar and firm Euro helped to limit losses. Another surge in equity
markets could trigger a retest of the recent high at 83.77.
The U.S. Dollar declined into the close after trading in a
tight range most of the day. A strong surge in the equity markets late in the
session confirmed investor demand for risky assets, thereby pressuring the
lower yielding Dollar.
At times on Thursday, traders were demanding lower yielding
currencies in response to an overnight report that showed Chinaâ€™s consumer-price index spiked
higher in February.Investors speculated
that its central bank would have to raise interest rates to curb economic
growth. The inflation report showed an acceleration from the year-earlier
month, to a greater-than-expected pace of 2.7%. The higher growth was tied to
greater-than-expected gains in fixed-asset investment, bank lending, and
The Dollar extended its earlier gains after economic reports
showed the trade deficit unexpectedly shrank and weekly initial claims for
jobless benefits fell. These gains were short-lived however, as investor demand
for higher-yielding assets picked up late in the trading session.
The March Japanese Yen finished unchanged after a choppy,
two-sided trading session. Earlier in the day, it rallied on speculation that China may have to hike interest rates to curb economic
growth but then broke when U.S.
equity markets weakened. Finally at the end of the day, the Dollar was able to
mount a comeback against the Japanese Yen as the stock market soared into the
The March Canadian Dollar rallied hard after early session
weakness to finish higher. The early session weakness was triggered when this
market failed to attract buyers after reaching its highest level since October
2009. Overbought conditions and less demand for higher risk assets also helped
to contribute to the early weakness. The strong rally late in the trading
session drove up demand for higher risk assets, thereby underpinning the
Canadian Dollar into the close.
The bigger picture still suggests that the stronger currency
is the Canadian Dollar. Higher oil prices and the prospect of rising Canadian
interest rates have helped increase the view that the Canadian Dollar could
test parity. Investors are beginning to believe that the Bank of Canada is
likely to hike interest rates before the Fed.
The March Euro closed higher in light trading. Todayâ€™s
action put this market in a position to challenge the recent top at 1.3735
while in the process, forming a new main bottom at 1.3528. Technically, this
currency is trading in a range. A support base is being built which suggests an
impending rally, but this market needs a catalyst to drive it through the
recent top. The easing of fiscal tensions in Greece is contributing the most to
the developing bullish tone. Traders seem to be waiting for some event to shake
up the record number of shorts in the market in order to trigger a
The Swiss National Bank voted on Thursday to leave interest
rates at historically low levels while reiterating its stance to intervene
decisively if necessary to protect the currency. It also raised its outlook for
2010 inflation from 0.50% to 0.70%. The rally in the Euro helped strengthen the
March Swiss Franc. Accelerating upside pressure could trigger a further rally
into a major 50% level at .9526.
The March British Pound closed higher after a Bank of
England report predicted that inflation would be 2.5% this time next year. This
projected increase was slightly better than the November guess of 2.4%. The
fact that this market was able to hold onto most of its overnight gains could
be a sign that the recent selling pressure has dried up. This could mean a
short-covering rally is imminent. Gains could be limited however because
aggressive shorts still feel that there is much more potential to the downside
because of the weak economy, political uncertainty and the BoEâ€™s dovish tone.
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