Today’s Market Guidance (From Profit Source Futures & FX Research)

Financial Overview:
With international equity markets overnight remaining off balance because of; the disappointing kick off to the US earnings cycle, uncertainty off the Google/China issue and also because of the lingering fear of Chinese tightening, there continues to be a mostly bearish view in place. We have also noted some coverage of ongoing foreclosure problems and talk of commercial real estate problems, but so far those issues haven't given off signs that they are set to become 'the' focus of the trade. Nonetheless, the market has also seen a series of US tightening stories (one from a US Fed member) but that talk was also accompanied by Fed predictions that unemployment would remain high for a long time. In other words, the stock market is seeing a relatively negative flow of news from the US Fed when they promise or threaten higher rates but also suggest that the employment picture is still bad. In other words, the Fed paints a negative picture regardless of their views on the recovery. However, with some countervailing economic readings coming out of Euro zone overnight and suspect economic readings from the UK there just wasn't any definitive help for the bull camp in the overnight economic readings. With the US economic report slate mostly empty today and the Google censorship issue a possible negative, we have to leave a slight edge with the bear camp today. However, today would technically be the third day down in some measures and that increases the odds of a bottoming effort after some initial downside action.


Dow:
Overhead resistance in the March Mini Dow is seen today at 10,635 but we doubt that area will be tested in the early trade. In fact, given the slack macro economic views and the fear of something negative from the Google situation, we would not be surprised to see a slide to close-in support down at 10,566, with the next more significant technical support level seen down at 10,537. However, up trend channel support is ultimately seen down at 10,519 basis the March contract.
 
Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. The close over the pivot swing is a somewhat positive setup. The near-term upside objective is at 10664. The next area of resistance is around 10637 and 10664, while 1st support hits today at 10549 and below there at 10487.
 
S&P:
Up trend channel support in the March S&P is seen all the way down at 1120.70 but with the March S&P unable to close back above the mid point of the big range down washout yesterday, we don't get a solid bottoming signal from yesterday's lows. Since today is technically only the second day down on a typical correction count, it is certainly possible to see more downside work ahead. At least in the early action today, we would see ultra critical support at 1131, but the flow of news is still favoring the bear camp.
 
The daily stochastics have crossed over down which is a bearish indication. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The market's close above the 9-day moving average suggests the short-term trend remains positive. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is 1119.44. The next area of resistance is around 1141.62 and 1149.93, while 1st support hits today at 1126.38 and below there at 1119.44.
 
NASDAQ:
Unfortunately for the bulls in the Nasdaq, up trend channel support isn't seen until the 1831 level today. Without the Google/China flap and the noted weakness in Google shares this morning, we would have discounted the potential for full a slide down to the up trend channel support line. However, the overall broad view on the recovery is still in doubt and the bull camp doesn't look to get much help from the headlines again today. At least initially the 1850 level looks to be solid support, with that level possibly representing the spike down reversal signal for the marketplace.
 
US Dollar:
The Dollar comes into the action today sitting just above a fresh downside breakout point on the charts. With the Chinese rate hike mentality overshadowing ideas that the US might hike rates before the Euro zone, and the outlook for the US economy currently suspect, the path of least resistance is still pointing downward in the Dollar. If the Dollar were poised to recover, we would have expected the Dollar to have bounced aggressively yesterday in the face of the favorable US auction results and also because of the news that the US Fed made a record $51 billion in 2009. However, the Dollar just isn't responding to bullish news and it would also seem like the partially negative kick off to the US earnings cycle is adding into the bearish tilt in the Dollar. While the US Dollar might garner some support from the US Fed Beige Book result later on today, we are doubtful that news will actually stem the near term weakness in the Dollar. In order to turn the Dollar back up might require an international flight to quality incident, or a very strong US economic report and that doesn't look to be in the cards today.
 
Gold:
Clearly a host of physical commodities like gold were undermined by the Chinese tightening news and that issue looks to hang over the trade again today because of a lack of fresh scheduled US economic news. However, it does seem as if a weaker Dollar has at least temporarily stemmed the brisk liquidation pattern that was seen from the prior trading session. The 50 day moving average in the April gold contract is seen at $1,130.70 today but since the Chinese tightening story seems to have been played out twice, it is possible that the negative influences off that story has run its course and the market might be able to give more credence to classic technical indicators. With the gold and physical markets still somewhat off balance because of the disappointing US earnings report from Alcoa, the gold bulls might need constant support from a weaker US Dollar just to see gold hold above the prior low of $1,125.60. With the overnight low of $1,126.60, relatively close to the prior session's low, that has prompted the tech crowd to peg the $1,126 to $1,125 level as some form of quasi double low pivot point on the charts. It is also possible that a noted improvement in Indian gold imports for December of 2009, over the December 2008 import figures lent some support to gold prices overnight. However, the gold trade recently just doesn't seem to be overly interested in classic physical supply side developments.


Silver:
While the initial US equity market track is positive this morning, international equity markets overnight were initially under significant pressure and that might serve to dampen interest toward a host of physical commodity markets. However, as in the gold market, the silver market is benefiting from a fresh new low for the move in the US Dollar. While the silver bulls might hope to get some residual support from ongoing news of a tightening of supply of American Eagle silver coins at the US Mint, the silver market just hasn't been able to benefit from classic physical supply side stories. Similarly the trade probably doesn't garner than much additional support from news of another modest decline in daily silver exchange stocks. With copper prices showing some recovery action today, the silver trade might not see as much drag from that outside market force, as copper at times on Tuesday, seemed to be dragging heavily on silver prices. In the end, a slightly up beat initial track in US equities and a weaker US Dollar tone appears to have given rise to a bounce up and away from the prior session's lows.
 
Crude Oil:
Crude oil has followed through lower overnight after yesterday's sharp break as a bearish turn in events has damaged demand sentiment and the short-term supply outlook. There is no question that March crude oil reached a technically overbought extreme on the $12 rally from the December low and the news this week has certainly provided traders with strong incentives to take profits. March crude oil has seen a sharp retreat from 15 month highs this week and yesterday's bearish API report is adding to the selling bias which is now firmly in place. While API reported a 1.2 million barrel rise in crude oil stocks which was in line with expectations, oil markets have been unnerved by the sharp jump in product stocks including distillates which rose despite mostly frigid weather conditions last week. With the API report showing a 1 million barrel jump in oil imports, last month's oil supply drain was likely just tax related window dressing. Since refinery operations remain below 80% and refiners are starting to announce maintenance plans, there seems to be a higher risk for oil stocks to climb in the weeks ahead. Part of the rally in crude oil has been based on optimism that the strong growth in China's oil demand with oil imports hitting a record level last year, would spill over into the European and US markets. But oil market sentiment has been undermined by China's steps to reign in liquidity amid concerns that tighter monetary policy will weaken demand for commodities including oil. Seeing the EIA reduce their world and US oil demand outlooks for this year has likely added to bearish sentiment. The oil market is also under pressure as a poor start to the US corporate earnings season has shaken macro economic confidence and seems to be raising doubts about the pace of the economic recovery. Fuel demand destruction has been further stoked by a warming shift in the weather pattern for the second half of the month that could notably reduce winter heating demand and dampen the prospect for a reduction in fuel supplies. Technically, March crude oil still looks to be under the negative influence of Monday's price reversal, but so far the market has been able to hold above the key $80 support level. Reports that Russia may cut off supplies to Belarus due to a pricing dispute may provide some price support to crude oil since this action could potentially impact oil supplies to Europe. But with funds likely holding a record net long position in oil on the rally to this week's highs, we suspect the market still has ample selling capacity if today's EIA report confirms the stock builds reported by API. With a selling bias firmly in place, seeing a bearish EIA report is likely to pressure March crude oil below retracement support at $79.86 which would then put the next downside target in the $78.67 to $78.45 price range. With the oil market still showing signs of being technically overbought, we suspect it will be difficult for the market to reverse course to the upside just yet unless a big bullish surprise is seen in today's EIA report, a more positive macro economic view can take hold or geopolitical tensions escalate. Otherwise, the path of least resistance still looks to remain down.
 
Considering the extent oil markets became overbought on the rally from the December low, we suspect they are still vulnerable to some additional selling pressure if today's EIA report also reveals a bearish surprise. In order to fully shake free from the bear camp's grip we suspect macro economic optimism for a recovery in oil demand will need to surface again and that may require a strong rally in equities.


Natural Gas:
While technical short covering seemed to be behind the higher trade in natural gas yesterday, we see limited upside potential as long as the warmer temperature forecast holds and that will leave downside price risk in place. The trade may be a bit hesitant to aggressively sell natural gas ahead of this week's storage report since some are expecting to see a record draw down in fuel stocks near 280 bcf due to the frigid conditions that blanketed most of the US last week. But we suspect any price support from the storage news will be short lived since most weather forecasters are predicting temperatures to warm up into the 40's for key US heating regions over the second half of the month. The flip to above normal temperatures will reduce heating loads and that may even result in storage draws that are below the 5 year average in coming weeks. In their short-term forecast released yesterday the EIA continued to predict natural gas production to decline by 3% this year, but with fuel demand expected to be unchanged, it may still take some time before the market's fundamentals become more balanced. So far, there haven't been any clear signs that industrial fuel demand is starting to recover which will need to be seen in order to support natural gas at higher price levels. March natural gas still looks to be under the negative technical influence of the price reversal from last week. If the warm temperature outlook holds, we can't rule out an eventual retreat in March natural gas back towards $5.114, which is a.618 retracement of the December low to January high range.