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

Financial Overview:
While the S&P didn't manage a new low in the range down recovery move yesterday, it did forge a quasi critical low on the charts and has remained near yesterday's highs into the early Thursday morning trade. While one might have expected the US financial sector to remain weak in the face of the recent announcement to tax financial companies for their TARP use, the market has apparently managed to shift its focus on more positive issues. Apparently the market was lifted by favorable earnings news from Rio Tinto, as that suggests the recent interest in natural resource companies is at least partially justified. However, we also get the sense that the markets are in need of even more favorable macro economic evidence to erase concerns that stock prices are over valued. Certainly the stock market was lifted by the mostly favorable US Federal Reserve Beige Book yesterday afternoon, but the trade also seems to need additional confirmation of progression from the consumer and that could come from the US retail sales report this morning. We suspect that the market will get something supportive from the claims reports, but the real focus might remain on the retail sales reading. With Intel reporting earnings after the close today, the earnings influence looks to be the main focal point into the end of the week. We have to give the bull camp a slight edge this morning, but we see the market as a spoiled child in need of constant support from the US scheduled data flow.

Dow:
Up trend channel resistance is seen today up at 10,669 but to see the Mini Dow run up into that level probably requires a decent sweep of scheduled data, particularly from the retail sales report. One shouldn't fight the up trend bias, but one should be watching the headlines closely for any news that dents macro economic sentiment. In fact, given the discussion of the Greece situation by the EU officials yesterday and seeing a formal ECB meeting today, there could be some credit related concerns coming out of that meeting. Therefore, the bias is up but the failure to hold above 10,600 wouldn't be a favorable technical signal in a market that doesn't appear to have a solid definitive bullish focus.

The market made a new contract high on the rally. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside objective is 10727. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 10704 and 10727, while 1st support hits today at 10610 and below there at 10538.

S&P:
As suggested already, the S&P managed a quasi critical reversal off the break early in the week, but since that spike down move wasn't a new low for the move, that washout probably didn't totally exhaust the bear camp. Nonetheless the market did correct some of its technically overbought condition and therefore it might not take much in the way of favorable news to see the March S&P make an attempt at the 1150 level. As in other markets, to charge into and sustain new highs probably requires a lift from Intel later today. We would remain bullish toward the S&P, as long as the March S&P manages to hold above 1140.80.


Stochastics turning bearish at overbought levels will tend to support lower prices if support levels are broken. A positive signal for trend short-term was given on a close over the 9-bar moving average. The close over the pivot swing is a somewhat positive setup. The next downside target is now at 1123.38. The next area of resistance is around 1149.50 and 1155.37, while 1st support hits today at 1133.50 and below there at 1123.38.
 
NASDAQ:
The Nasdaq seems to have recovered from the Google/China inspired setback. In retrospect, there were other macro economic negatives that added into the correction in the Nasdaq early this week but with Intel earnings due out after the close today, we suspect that investors saw this week's break as a chance to add to their long holdings. Without some fresh major negative headline development, the March Nasdaq might be in a solid technical position to rally to new highs, but that will clearly require a 'beat' on the streets Intel earnings after the bell today. We would remain bullish toward the Nasdaq as long as it manages to hold above 1880 on the charts.
 
US Dollar:
So far, the Dollar has managed to hold above the prior session's lows. However, despite seeing a somewhat up beat US Federal Reserve Beige Book yesterday, the Dollar just doesn't seem to be in a position to throw off the downward bias, without something very strong from the US data flow. In fact, with a very strong Australian jobs report overnight, the US condition would seem to look a little softer and that probably means that the trade will be a harsh judge of the US scheduled data flow this morning. In other words, seeing a +.3 to +.5 gain in retail sales this morning might not lend any support to the Dollar, while anything weaker than that range, could foster fresh selling of the Dollar. Not surprisingly, the Dollar doesn't even see the new tax on TARP users as a development that shores up the US financial situation and that highlights a trade that is generally spinning developments into a bearish track for the Dollar. In conclusion, assume that the path of least resistance is pointing downward in the Dollar unless there is a headline growth reading that sends US equities into new high ground.
 
Gold:
Some gold bulls will suggest that the Dollar's recent track below the 77.00 level is fostering ideas that the Dollar remains in a down trend pattern that started back on December 22nd. While the gold market might be supported by news of another year over year 4.9% decline in November South African gold production, that news is partially countervailed by news of an increase in gold production from Fresnillo. While the South African production decline would seem to overshadow a rise in production from a single gold producer, the gold market was also presented with higher output news from Rio Tinto overnight. However, the gold market just hasn't been overly focused on classic supply side developments, as the demand or investment track has typically controlled market sentiment. While some traders are fearful of some type of move from the ECB meeting, it is probably still premature to fret over rising Euro zone rates. In the end, it would probably be a surprise to see the ECB actually move on rates, but it wouldn't be as big of a surprise to see the ECB dialogue toward future rate moves change a little. The 50 day moving average in the April gold today comes in down at $1,132.40.
 
We continue to have trouble coming up with a scenario where the bulls manage to regain full control of the market in the near term. We can't rule out some moderate strength in gold today on residual Dollar weakness but with the trade starting to fear rate hike action from a number of central banks and the Chinese and Australian central banks seemingly already into a rate hike cycle, we have a sinking feeling toward the gold trend. As suggested earlier this week, inflation almost has to sneak up on the market, or there has to be another serious financial threat to the US, to put the gold bulls back into the driver's seat. We might suggest that longs exit gold futures and use gold calls instead.





Silver:
While the March silver contract has generally managed to respect the even number $18.50 level overnight, there is almost a pattern of lower highs forming on the charts this week. Like the gold market, the silver market was also presented with some classic physical supply side news overnight. However, in the silver market the 4th quarter silver output rise from Fresnillo is a somewhat noted supply figure for the silver trade. However, as in the gold market, the silver trade recently hasn't put a large premium on physical supply side news. With the US Dollar chopping around both sides of unchanged this morning, it is possible that the US scheduled data flow will be an important influence on silver prices this morning. With copper and energy prices showing only marginal early strength today and a host of other physical commodity markets showing initial weakness, one could suggest that silver needs to see favorable US numbers, without a higher US dollar to spark a silver rally today.


As in the gold market, we are having trouble figuring out a way for silver to weave through the current market setup and come away with a definitively bullish track. However, we would hold out some bullish hope that the market will see some strong numbers today or that the Intel earnings after the close will present a more positive macro economic view and that in turn might allow silver to rally. However, the numbers have to be strong enough to fan economic optimism, but not so strong that the Dollar rallies. We are bullish but we have seen much better conditions for the silver bulls than are currently in place.


Crude Oil:
Crude oil prices have been able to bounce a bit in the early overnight action and a portion of the gains are likely based on technical signals with price support also stemming from an improving macro economic view tied to gains in global equities following the rally in the US stock market yesterday. March crude oil showed some technical strength by significantly cutting losses yesterday and holding a test of the 40 day moving average at $78.71. It looks as if some better corporate earnings news along with the Fed's Beige Book report showing economic improvement expanding to more districts helped to improve the macro economic climate to a certain extent and that seemed to be enough to partially offset a very bearish build up in supplies. Part of the recovery in oil prices off yesterday's low may have been tied to some traders coming to the conclusion that China's steps to soak up excess liquidity, which had undermined demand optimism earlier in the week, is just a sign of economic strength and a reflection of the country's robust demand for raw commodities including oil. So far March crude oil has held to a fairly tight range overnight with the upside limited by overhead resistance at $80.75 and the market tentatively holding above retracement support at $79.86. However, we are skeptical of the market's upside potential given that oil supplies are quickly rebuilding this month after refiners drained end of the year supplies for tax reasons. It was particularly bearish to see a 3.7 million barrel rise in oil stocks despite a 1.4% jump in the refinery operating rate. But even a more negative development for crude oil is the build up in product stocks, which suggests fuel demand remains anemic, even at a pinnacle in heating demand. In fact, the EIA reported total product demand over the past four weeks was still down about 1% compared to year ago. Since speculators were likely holding a record net long position in crude at this week's highs, the $5.65 price break may not have been enough to correct the market's extreme overbought condition and that could still be a limiting factor for the bull camp. Therefore, in order to shake off the bearish supply side setup a much more optimistic macro economic view will need to take hold to brighten the outlook for oil demand. In order for March crude oil to make a push above yesterday's high at $81.01 will likely require more upside leadership from equities and better than expected readings in today's reports on weekly jobless claims and retail sales. Otherwise, we see the bearish supply situation having the potential to exert more downward pressure on March crude oil in the short-run that could eventually pull the market back toward key retracement near $77.03.


Natural Gas:
It was a bit surprising to see such a strong recovery bounce in natural gas yesterday, but apparently traders were positioning to possibly see a record fuel draw from storage in today's report. Most traders are expecting fuel stocks to decline by 256 bcf which would be significantly above last year's 88 bcf draw and the 5 year average decline of 76 bcf. But there has been talk that last week's frigid temperatures may result in a 280 bcf draw since there was apparently some well head freezing and power demand reached a winter record last week. A fuel storage drain of that size would exceed the previous record of 274 bcf decline seen in January 2008. But while the initial reaction to a big storage draw may be positive, we remain skeptical of the upside potential for March natural gas given the temperature warm up expected in key heating regions over the next two weeks. Given the pent up trade anticipation, the storage report will certainly set the early tone. A push through overhead resistance at $5.75 could give March natural gas some technical upside traction, but we still see the $6.00 level as a tough ceiling to crack unless optimism toward industrial fuel demand begins to take hold. In recent weeks storage reports have been a bit disappointing and given the above average temperature forecast that will certainly reduce heating demand, seeing a fuel draw under 256 bcf could trigger a sizable price break in March natural gas with the market perhaps giving back a large portion of yesterday's gains.