Today’s Market Guidance

Financial Overview:
The stock market has to be somewhat deflated as a result of the Fed's move to hike interest rates. With the markets also seeing reports of cyber attacks, there is an added measure of anxiety in the marketplace. With the cyber attacks taking place shortly after the US President met with the Dalai Lama and the attacks rumored to be traced back inside China, there is certainly the potential for a war of words. On the other hand, it would seem like most global equity markets weathered the initial storm, of what many think is a premature rate hike move. While the Fed claims that the move won't raise rates to the consumer that view would seem to be a bit naive, especially in the mortgage area where lenders will probably fully embrace the opportunity to squeeze out some additional profits on some loans. While the market appears to be shaking off the impact of the Fed move, we suspect the market will still see the move as an excuse to bank profits off of the February run up. We don't expect to see hard down action today but the need for positive data and positive corporate news has been pushed upward. Traders might look to the prior sessions lows as an important pivot point for sentiment, a slide below those levels later today might serve to increase technical selling pressure, while a hold above those levels into the close today would signal that the first rate hike move is already behind the market.

DOW:
So far the March Mini Dow has weathered the Fed move but we aren't convinced that the market is capable of extending the rally off the news that will be presented today. As suggested already, the bull camp will need some type of headline help of some impressive foot work from the Fed just to get back in control of the market. Initial critical support in the March Mini Dow is seen at 10,296 and then again down at 10,250. In fact, the ability to close above 10,300 today would be considered a major victory for the bull camp, but unfortunately the best window to recover will be very early in the session today in the aftermath of the early Fed speech.

The cross over and close above the 60-day moving average is an indication the longer-term trend has turned positive. The upside crossover of the 9 and 18 bar moving average is a positive signal. Rising stochastics at overbought levels warrant some caution for bulls. A positive signal for trend short-term was given on a close over the 9-bar moving average. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 10488. The next area of resistance is around 10452 and 10488, while 1st support hits today at 10312 and below there at 10209.

S&P:
Close-in critical support in the March S&P is pegged at 1093.60 and then again down at 1092.60 but the initial edge has to be with the bear camp. However, as suggested already, the markets best chance for a bounce might come right after the Fed's 6:00 AM cst speech, but only if the New York Fed manages to sooth concerns about the hike being part of a rising rate wave. As we mentioned in the broad coverage, the markets are handling the rate hike rather well but we still think that the odds are greater for a profit taking slide today as opposed to a 'buy the fact rally'. What the Fed might have done, is simply reduced the expectations of reward for the longs.

The cross over and close above the 60-day moving average indicates the longer-term trend has turned up. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market's close above the 2nd swing resistance number is a bullish indication. The next upside objective is 1116.68. The next area of resistance is around 1112.87 and 1116.68, while 1st support hits today at 1099.13 and below there at 1089.19.

NASDAQ:
In addition to the Fed move, the Nasdaq is also being confronted with news of cyber attacks that appear to have been launched from inside China. Furthermore, it would also seem like Google shares could be under attack from cyber attacks and also from investors as the go ahead was given to a Microsoft/Yahoo advertising venture and that could serve to dent Google shares. Close in pivot point support is seen at 1804.50 and then again down at 1800, but it will be difficult to see a noted and sustained push back up in equity prices today.

US Dollar:
The Dollar is clearly getting the biggest impact from the Fed's move to hike rates. We suspect that the November through present rally in the Dollar was already an assumption that the US would be the first to hike interest rates. It is possible that the US CPI report this morning could justify the Fed move yesterday, which they seem to suggest wasn't actually 'tightening'. While the Fed is seemingly attempting to suggest that the move was to put conditions back to normal, the markets in general take the move as a sign that the US is showing signs of returning to a more normal term structure of interest rates. With the Euro already mired in political and financial turmoil, the Fed's move clearly turns up the pressure on the euro and in turn gives the recent Dollar rally credibility. We see little to prevent the March Dollar index from trading up to the 82.00 level and perhaps even to the 83.00 level next week if the US auctions go off well and Greece sees more internal conflict off the forced austerity program. We doubt that the March Dollar will see sustained trading activity back below the 80.83 level.

Gold:
One has to give the Fed credit for the timing of the move yesterday, as it clearly caught the markets off guard and might have been timed to have the least amount of impact. With the Chinese on holiday and the US markets mostly closed in the wake of the announcement the impact has so far been muted. While the Fed has suggested that the move was needed to bring conditions back to normal, it will be very difficult for the gold market to totally discount the rise in the discount rate. With the Dollar also managing a range up move overnight, the gold trade is clearly undermined by the initial currency market action. Unfortunately the gold market might be undermined by news of higher gold production forecasts from Turkey, for 2010 overnight, but it would also appear that gold has recently been infinitely more interested in demand, as opposed to supply side news. All things considered, the gold market appears to be facing classically bearish fundamental news flow this morning, but the shock value of the Fed's action could wane quickly if crude oil, energies and other physical commodity markets manage to hold up in today's trade. Traders should probably attempt to determine whether equities or the Dollar have become the primary outside market influence for gold prices.

Silver:
The bull camp is hoping that the Fed's move will go quietly into the night. However, it is really difficult to make the Fed's move and the upside extension in the US Dollar, into a positive for silver prices. In fact, seeing a hot US CPI report later this morning, could actually serve to justify the Fed's move as necessary, even though the Fed has initially suggested that the move was mechanical in nature and not indicative of a policy trend. On the other hand, very few traders would have expected silver to enter the early morning Friday trade, sitting close to the Thursday closing value. In fact, some traders are suggesting that the action this morning hints at a limited impact from the rate change. The Thursday close in May silver was $16.08 and that could be considered a very critical pivot point in the silver trade today. As in the gold market, it will be interesting to see which outside market influence is set to dominate silver, equities or the Dollar?

Crude Oil:
Crude oil has fallen back in the overnight trade as a surprise hike in the US discount rate by the Fed has triggered a sharp rally in the Dollar and has undercut yesterday's optimism for a recovery in fuel demand. The initial reaction to the Fed starting to remove the excessive amount of monetary liquidity added during the financial crisis certainly seems to be dampening sentiment toward commodities including oil on expectations that a rising interest rate environment could prolong or even impede demand for oil that currently remains weak despite signs that economic conditions are starting to improve. Yesterday's steep price gains in oil were partly tied to more signs of improvements in regional manufacturing and another rise in leading indicators providing a more optimistic macro economic view. In fact, the bullish reaction in the oil market seemed a bit overblown considering the EIA reported a nearly 3.1 million barrel rise in crude oil stocks and higher gasoline supplies while the decline in distillate stocks still left supplies at a record level for this time of year. Certainly other factors were behind the gains in oil yesterday including escalating concerns over Iran's nuclear program after the IAEA warned that Iran could be working toward making nuclear weapons and that has the market jittery that any further sanctions against Iran could possibly disrupt supplies from the region. A refinery strike in France and problems at an a large oilfield in the UK have also raised supply side concerns and may be helping to limit the selling in the product markets so far. Still, the Fed's action has certainly shaken the confidence of the oil market bulls and with investor risk appetite being dampened, oil is under pressure since the spike higher in the Dollar and weaker equity market trade diminishes the oil market's appeal as an alternative investment. Today's CPI report could provide another selling incentive in the oil market if the inflation reading comes in higher than expected and further lifts the Dollar on concerns the Fed may become more aggressive in tightening rates. Fundamentally, crude oil near $80 per barrel in a rising rate slow growth environment seems a bit pricy. But crude oil has also shown resiliency to bearish news over the past two weeks and April crude oil holding above $78 leaves the uptrend from the February low in tact. The oil market's reversal to the upside in yesterday's trade was impressive. But in order for that to occur this session either supply side issues would need to become more threatening or the market would need to quickly shake off concerns over rising rates impacting oil demand which may be difficult unless the dollar starts to give back a portion of its gains. Otherwise, with both the US and China starting to tighten, April crude oil may end up trading in a $80 to $75 price range for now.

Natural Gas:
Natural gas edged lower overnight following yesterday's steep fall with the market now adding concerns of rising US interest rates to expectations for fuel supplies to build this spring. Natural gas was pushed to a new low for the move overnight as the Fed's surprise discount rate hike yesterday has triggered a sharp move higher in the dollar reducing investor risk appetite for commodities while also dampening the demand outlook. A major weight on the natural gas market has been the slide in industrial fuel demand which has yet to recover despite signs that economic conditions are improving. As the Fed removes its stimulus measures and tightens liquidity, a recovery in industrial fuel demand may be drawn out. Given yesterday's bearish reaction to the storage report which showed a 190 bcf draw and was in line with expectations, it's clear the market is already looking beyond the winter season and anticipating a hefty build in fuel supplies this spring. Storage declines may have already peaked and supply side concerns have the market jittery with some forecasters predicting milder temperatures ahead for the Northeast. With the number of US natural gas rigs in operation up over 30% since bottoming out last July and liquefied natural gas imports expected to be higher this year certainly leaves the supply outlook with a bearish tilt once winter heating demand starts to fade. Therefore, we see natural gas maintaining a downward trend bias and bouts of short covering should be considered selling opportunities. Below $5.11 price level, support for April natural gas comes in between $5.056 to $4.97 and below there at $4.82 with resistance at $5.19 then $5.267 and above there near $5.40.