Today’s Market Guidance

Financial Overview:
The stock market forged a very impressive extension of its recent upward track yesterday and is seemingly set to add to that effort early today. We continue to see the 1100 level in the March S&P as a critical resistance zone but for the next few trading sessions, it would seem like the bull camp is capable of extending its control. We are not sure if the continuing shift in political power in the US is behind the recently improved sentiment, or if the improvement in sentiment is being derived from favorable corporate earnings or from the 30 day grace period for Greece, but the trade does seem to be spinning the headlines into mostly favorable stories. At least in the early action today we saw financial/bank sector stocks mounting gains in the early European trade and that looks to start the US action out on a slightly positive tilt. However, sentiment isn't definitively positive and the bull camp in stocks probably needs distinct help from both the US Housing starts and permits reports and also from the US Industrial Production/Capacity Utilization readings. So far, it is unclear how the markets will react to news of another 'bi-partisan' debt reducing effort from Washington, mostly because cooperation in Washington has become a very rare event. In conclusion, we suspect that the numbers will be partially acceptable today, but that gains today will probably be smaller than yesterday.

DOW:
With the March Mini Dow managing to post some positive early action this morning and in the process managing to forge a quasi upside breakout on the charts, one has to leave the edge with the bull camp. Unfortunately, we doubt that the first set of scheduled US data will provide a conclusively bullish reading from the US housing front and that could diffuse a portion of the early bullish tilt. At least into the opening today, support in the March Mini Dow moves up to 10,241, with initial resistance pegged up at 10,310.

Positive momentum studies in the neutral zone will tend to reinforce higher price action. The close above the 9-day moving average is a positive short-term indicator for trend. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The near-term upside target is at 10377. The next area of resistance is around 10333 and 10377, while 1st support hits today at 10163 and below there at 10038.

S&P:
Unlike other sectors of the market, the March S&P hasn't managed an upside breakout on the charts. However, the S&P has managed to extend the recent pattern of gains and did forge a higher high for the move this morning. Initial support is seen at 1093.90, with initial resistance seen up at 1101.50. At least into the opening today, we concede to a bullish edge in the market, but we are not sure if a negative US housing permits reading will fully take the edge away from the bull camp.

Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The intermediate trend could be turning up with the close back above the 18-day moving average. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 1107.93. The next area of resistance is around 1103.12 and 1107.93, while 1st support hits today at 1084.38 and below there at 1070.44.

NASDAQ:
Like the Mini Dow, the Nasdaq has also managed an overnight extension of the recent bull track, with the March Nasdaq reaching the highest level since January 28th. Apparently the smaller cap stocks are being pulled higher by favorable views toward financial and large cap stocks and that leaves the bull camp with a slight edge into the US opening today. Initial support in the March Nasdaq is currently seen at 1797.75, with resistance today pegged at 1808. For the time being, the broad macro economic view looks to be the main factor driving stock prices.


US Dollar:
With the US Dollar Index managing a fresh new low for the move overnight, it is clear that the flight to quality concerns in the marketplace are currently minimal. However, we suspect that the Dollar might be poised to see a bit of a lift in the wake of the US Housing Permits release, as that reading is expected to be soft and that reading is sometimes considered a leading indicator for the US housing sector. We are not sure if the US Dollar is poised to react to the shifting political scene in the US and we are also not sure if the Dollar is going to be impacted by talk that China might be taking measures to lower their US debt holdings. However, seeing even a slight tempering of Chinese interest for US Treasuries, in the face of historic supply flow of US debt, can't be a good thing for the US Dollar in the long run! At least in the near term, we see the prospect of further minor weakness in the Dollar, off a slight improvement in macro economic sentiment, but we really doubt that the overall pattern of strength seen in the US Dollar since the late November low is set to come to an end, especially since the Greece situation is apparently far from being resolved.
 
Gold:
While US equities are showing initial follow through strength this morning, a slightly higher Dollar and lingering Greece currency swap concerns have left gold chopping around both sides of unchanged in the early US trade. The gold market was presented with a number of World Gold Council demand readings for 2009 and some of those readings seemed to favor the bear camp. However, looking back to 2009 demand figures in gold might be considered old news to the market, with most of the trade more interested in what 2010 demand will be. With the World Gold Council also pointing to an improvement in 4th quarter 2009 gold demand patterns and suggesting that 2010 'western' investment demand for gold will be solid, the trade appears to have gotten some good news from the WGC. However, the bull camp has to hope that the trade continues to discount Greece concerns and the bull camp also has to hope for ongoing gains in US equities. The bear camp on the other hand, probably wants to see some disappointment in the US scheduled numbers this morning, but the really big news for the bear camp in gold could come from the effort to force disclosure of the Greece currency swaps maneuvering by the end of this week! In the end, gold appears to be tracking its physical or classic commodity market fundamentals and that might leave equity market action as the primary driving force for the gold trade.
 
Silver:
The May silver contract has managed another new high for the move in the early Wednesday trade. Not surprisingly, the silver trade seems to be giving more credence to positive equity market action, than it does to a higher Dollar trade. Overall, it would seem like macro economic optimism has managed to remain positive, despite ongoing rumors of financial irregularities within the Euro zone admissions process. With so many outside market developments surfacing recently, the silver trade probably hasn't benefited from a recent pattern of minor declines in daily silver exchange warehouse stocks. In fact, silver and gold both appear to be infinitely more concerned with demand prospects, as opposed to minor supply side potentials. With the copper and energy prices forging very strong upside moves in the prior trading session that could leave silver with some positive industrial market influences in the early trade today. On the other hand, it would appear that silver still needs constant help from the economic outlook front and that could mean that silver will take a large measure of direction from the scheduled US data flows.
 
Crude Oil:
April crude oil has been able to follow through higher overnight after posting hefty gains in yesterday's trade. With the market able to push above some key technical levels, April crude oil looks to be on course for a move back to the $79.16 to $80.00 price range. But the gains in crude oil are mostly being based on a more optimistic macro economic outlook and that means the bull camp's resolve will likely be tested since this week's inventory reports are expected to show a nearly 2 million barrel rise oil stocks and another hefty build in gasoline supplies. But for now the bull camp still appears to have the upper hand with crude oil being underpinned by a better macro economic view being thrown off by the strength in equities, reports of good corporate and bank earnings and yesterday's report showing regional manufacturing growth which is raising optimism for a recovery in fuel demand. A respite in the anxiety over the European sovereign debt problems and expectations for now that European finance ministers will be able to help Greece manage its debt has also been a factor raising investor risk appetite to the oil market's benefit. But we are skeptical that the optimism will hold for the European debt problems to be resolve and that will leave oil markets vulnerable to disappointment on this issue. Oil markets have also been underpinned to a certain degree by the escalating geopolitical tensions with Iran over its nuclear program as the comments between Iran and the Western powers have become more threatening. Still, we suspect in order for the oil prices to gain more upside traction from current levels the market will need to see both a steady stream of bullish news along with outside market support. But with the dollar starting to gain some ground in the early going, the currency action may end up being a limiting factor for the oil bulls, especially if the Euro ends up giving back a sizable portion of yesterday's gains. Oil markets have been closely following the ebb and flow of the equity markets and so seeing equities add onto gains will be critical in keeping oil prices on an upward track. As a result, today's reports on housing and industrial production will provide some additional economic insight and certainly influence sentiment and price direction in both markets. The bull camp in oil continues to have the edge in the morning trade, but the gains in oil look fragile since the fundamentals remain weak. Crude oil clearly has an upward bias, but it also won't be surprising to see oil prices start to back track if outside market support begins to fade.
 
Natural Gas:
Natural gas has bounced a bit in the early overnight trade, but with the winter season winding down we see limited upside potential while downside price risk will remain in place. With weather forecasters predicting below normal temperatures for the US heating region through month end still gives April natural gas some upside potential. In fact, natural gas could get a price boost if today's reports on housing and industrial production come in better than expected. But the upside in April natural gas is still likely to be limited to the $5.55 to $5.64 price range. We suspect fresh selling will continue to be seen at these price levels since once winter fuel demand begins to fade, storage supplies could quickly rebuild. There are growing concerns that the supply side in natural gas will become burdensome again this spring since industrial fuel demand remains weak and the number of natural gas rigs in operation have been steadily climbing reaching an 11 month high last week. Therefore, traders should consider rallies back to the upper end of the February range as a selling opportunity.