Today’s Market Guidance

Financial Overview:
The S&P seems to have forged a quasi double top with the overnight highs and the prior session's highs. In looking forward today, we see a market in need of freshly supportive fundamental headline news. We are not sure if the markets are going to be lifted by news of progress on a US Jobs bill, even if the latest bill has some semblance of economic principles in it. One could suggest that it took this Congress and the President almost $1 trillion in spending before they decided to try a few billion in stimulus that was actually based in classic economic theory. With the BOE overnight indicating the need to extend quantitative easing and global equity prices mostly off balance overnight, the market is facing some adversity into the Tuesday morning trade. We suspect that the trade will take a large measure of direction from the Case-Shiller home price survey and the Consumer Confidence readings, but there are also a number of potentially critical cyclical earnings reports due out from the US early in the session today. While one would think that stocks will be lifted by coming testimony from Bernanke, on why last week's rate hike wasn't a rate hike, the market will first have to avoid a corrective action in the face of the home price news and the first leg of a record US Treasury auction cycle. We see no reason to derail the February rally yet but the bull camp will have to weave its way through the information of the next 2 hours, in order to avoid a temporary setback to 1100 in the S&P.

DOW:
The March Mini Dow has failed to take out the prior session's highs and looks to start the US Tuesday trade out on a slightly weak footing. A flurry of cyclical earnings news just ahead of the opening today looks to set the tone for the day, but expectations of a decline in the Case-Shiller home price survey look to pull prices downward, if any of the earnings reports are disappointing. We think the Fed has to go the extra mile in supporting the 2 Year note auction at mid session today as the action in the equity markets will be the real measure of what the market thinks about last week's discount rate hike. In short we see the prospect of a slight correction in the March Mini Dow down to 10,327 but we also think the odds are good that the market might respect that level and regain its bullish footing.

Momentum studies are trending higher but have entered overbought levels. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next upside objective is 10468. The next area of resistance is around 10420 and 10468, while 1st support hits today at 10338 and below there at 10304.

S&P:
Upbeat dialogue from Home Depot should help to underpin the market today against what looks to be a somewhat sloppy start. The market seemed to need a back and fill, or a corrective balancing after the progressive gains in early February, but to restart the upward tilt again today, probably requires some type of headline story, which in turn manages to rekindle optimism. Critical pivot point support in the March S&P today is seen at 1103.30. As suggested in other comments, the coming 36 hours of trade are going to be a lot more important than many traders realize. In our view, the economy needs to show itself to be growing again, the Fed needs to successfully convince the market that rates are still on hold, and lastly the Treasury needs to successfully auction off a lot of US debt supply!

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 has a slightly positive tilt with the close over the swing pivot. The near-term upside target is at 1117.06. The next area of resistance is around 1112.12 and 1117.06, while 1st support hits today at 1102.88 and below there at 1098.57.

NASDAQ:
The March Nasdaq looks to start the Tuesday session out on a weaker footing but the selling looks to be simple profit taking and not anxiety based selling. In fact, we suspect that the March Nasdaq will find support at 1812 today, even in the face of some discouraging news from the home price front. In the event that the private home price report is shaped into anything positive, that could shift sentiment 180 degrees and send the Nasdaq to the highest level since January 22nd.

US Dollar:
After a sharp range down probe was rejected, the Dollar enters the action today within close proximity to the prior session's high. We think that the Dollar is poised for even more gains ahead as the US Fed and Treasury are pulling the right knobs and pushing the right buttons. In fact, the Fed's Yellen recently suggested that massive inflows of capital into the US Dollar would not be a favorable development and that suggests the Fed sees the prospect of further Dollar gains ahead. In fact, we suspect that the Fed and the Treasury are preparing to stand on their heads, in order to place the coming Treasury supply. We also think that the latest Congressional effort on the jobs front is a positive to the Dollar, even though Congress seemed to throw away the first Trillion in stimulus. As suggested in other markets, today could be a very critical junction for a host of financial and physical commodity markets and the Dollar will be no exception. We have to favor the upside tilt in the Dollar, especially after the overnight corrective action served to balance the technicals. Up trend channel support in the March Dollar index is seen at 80.27 and that trend support rises to 80.41 on Wednesday. The Dollar looks to firm, but bulls should not tolerate a return to the early lows of 80.14.

Gold:
The gold market in retrospect handled the surprise rise in the US discount rate rather impressively with April gold at times yesterday sitting as much as $33 an ounce above pre-hike price levels. However, persistent strength in the US Dollar seems to have resulted in April gold prices stalling around the $1,127 level on the charts. One might have expected the gold market to see some support off news overnight that Gold Fields 3rd quarter 2010 gold production will come in below their initial expectations, but recently physical supply side news hasn't been given a dominating status in the gold trade. With the trade seeing a record US Treasury auction supply flow this week and the US Fed Chairman scheduled to testify to Congress on Wednesday, it would appear that many physical commodity markets are potentially facing a critical fundamental decision point directly ahead. At least in February, the gold market appears to have needed favorable equity market action and perhaps even up beat growth views to rally and therefore the markets reactions to critical events in the coming 36 hours, might be rather important to gold prices. The 100 day moving average in April gold is seen down at $1,103.30 today.

Silver:
The silver market overnight tried to return to the vicinity of the prior session's highs but in retrospect it would seem like the even number level of $16.50 in the May silver contract limited the trade. At least in the early going today, a number of physical commodity markets are showing early weakness and that would seem to suggest that overall macro economic sentiment is sagging somewhat. Perhaps seeing the BOE call for an extension of their quantitative easing program has undermined sentiment, or perhaps seeing a series of soft Euro zone numbers is serving to pressure physical commodities. Since the Dollar was moderately weaker early (before it recovered) it would not seem like the currency impact is the main cause of the initial weakness in silver and other physical commodity prices. Since silver seems to be tracking tightly with copper and equity prices recently, it would seem like classic industrial or physical demand potentials are influencing the silver trade, perhaps even more than the financial or flight to quality themes. With May silver prices sitting just above the even number $16.00 level this morning, it is possible that silver prices are facing a key trend decision in the wake of a number of potentially critical economic events directly ahead.

Crude Oil:
Crude oil has pulled back sharply in the early overnight action with traders take profits as meetings today may end a refinery strike in France and as traders adjust positions ahead of this week's inventory reports. Crude oil has sold off and isn't seeing the price support from the French refinery strike that it has in previous sessions even though the strike is entering its seventh day and has shut all six of Total's refineries cutting French refining capacity in half. However, news that the strike action at two Exxon refineries in France has been postponed hints that that strike situation at Total may be resolved soon. Since crude oil has been pulled higher by gains in gasoline on supply side strike related jitters, oil markets could give back a portion of those gains once the French refinery strike is resolved. In fact, crude oil above $80 per barrel looks a bit fundamentally pricey considering the low US refinery operating rate suggests weak refinery demand for oil could result in another hefty build up in crude stocks in this week's inventory report. Since most traders are looking for crude oil stocks to climb by about 2 million barrels per day in this week's reports following a 3.4 million barrel gain the previous week, some of the early selling in crude oil can be tied to profit taking. Part of the gains in crude oil has been on expectations that global oil demand will recover this year and a report overnight showing a nearly 20% drop in South Korea's crude oil imports last month may have undermined sentiment. Another report showing an unexpected drop in German business confidence seems to have triggered a strong recovery bounce in the dollar from overnight lows and that also looks to be putting some currency connected pressure on the oil markets this morning. With equities also starting to turn weaker, seeing investors scale back risk aggressively could escalate the selling interest in oil this session. April crude oil has seen a nearly $11 per barrel rally from the February low and with the market becoming short-term overbought, it's not too surprising to see some traders want to book profits ahead of Fed Chairman Bernanke's testimony on Wednesday. The weak price action in oil this morning is likely a reflection of the oil market's jitters regarding how aggressive the Fed will be in extracting the excessive liquidity added to the economy during the financial crisis. The Treasury will start to auction off a record amount of debt scheduled to be sold this week and that could have a spillover effect on the oil markets as well. With crude oil down sharply in the early going, it looks as if the market has fully priced in the French refinery strike for now and instead has shifted focus to US fundamental issues which seem to favor the bear camp. With April crude oil falling below support at $79.16, the next critical area of support doesn't come into play until the $78.34 (100 day moving average) to $78.14 (40 day moving average) price range and below there not until $77.50. And unfortunately for the bull camp, the first retracement of the February low to high range is back at $76.58.

Natural Gas:
While April natural gas is tentatively holding above yesterday's low in the early overnight trade, the weak price action and bearish chart setup leaves the market on course to eventually retest the December low. The next critical level on the chart will be the December gap at $4.83 to $4.803. But we doubt this support area will hold because it's apparent the market is already looking beyond the winter season since April natural gas hasn't been supported at all by a forecast for gas heating demand to be up 8.7% this week. Instead, the market is anticipating a hefty build up in natural gas supplies this spring. Supplies of natural gas have been trimmed from record levels last fall by strong heating demand this winter. But there are growing concerns that natural gas storage levels could quickly build up again once heating demand fades since industrial fuel demand remains weak while the number of drilling rigs in operation has climbed 34% from last July and since shipments of liquefied natural gas to the US are expected to rise this year. With the fundamental outlook starting to turn bearish again, the path of least resistance should remain down. Therefore, bouts of short covering in natural gas should be considered selling opportunities.