Today's Market Guidance

Financial Overview:
The tech sector and pharma shares are doing their part in supporting the broad market this week. In fact, in looking at the charts yesterday, the market was able to reject a noted selling wave and make a positive close and a fresh new high for the move in many market measures. The market could have been cheered by favorable Chinese trade data overnight, but unfortunately for the bull camp in stocks, the number flow out of the UK and the Euro zone overnight mostly served to temper the optimism fostered by the Chinese news. In looking forward, the fear of surging debt and ongoing debt ratings concerns toward the UK, seem to provide an ongoing threat to the bull camp. However, recent Fed dialogue was supportive of the bull theme, as the Fed's Evans indicated that the US Fed was likely to remain with the easing stance for the next 3 or 4 Fed meetings. Apparently the stock market isn't overly concerned about the lack of US data flow this week, as the trade has generally managed to keep positive momentum in place, off very little headline assistance. Therefore, we have to leave the edge with the bull camp, but we are concerned with the amount of deficit news that could be seen in the Wednesday trading session.

DOW:
The up trend channel in the March Mini Dow seems to remain in place, despite ideas that upside momentum is slowing. A buyout in the Biotech sector overnight seems to be providing the broad market with a slight lift in the early going today especially after the markets saw some slightly disappointing economic news from both the UK and the Euro zone overnight. Up trend channel support in the March Mini Dow is seen at 10,416 today and that trend line support rises to 10,444 on Thursday. The bulls have the trend, even if the trade seems to be rising without a distinctly positive fundamental force. Initial resistance in the March contract today is seen at 10,591.

Rising stochastics at overbought levels warrant some caution for bulls. The market's short-term trend is positive on the close above the 9-day moving average. The upside daily closing price reversal gives the market a bullish tilt. With the close over the 1st swing resistance number, the market is in a moderately positive position. The near-term upside target is at 10666. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 10620 and 10666, while 1st support hits today at 10514 and below there at 10454.

S&P:
The March S&P mostly remains in a positive tilt in the early going today and that is somewhat surprising considering that the trade is fearful of financial sector punishment within the impending financial reform push. Up trend channel support in the March S&P is seen at 1130.50 today, with that support level rising to 1134.75 on Thursday. However, there will be plenty of focus on US debt today, with a US Budget reading, another US auction and US Treasury Secretary testimony on the US 2011 budget and that flow of news could end up favoring the bear camp toward the end of the trading session today.

Rising stochastics at overbought levels warrant some caution for bulls. The market's short-term trend is positive on the close above the 9-day moving average. The upside daily closing price reversal gives the market a bullish tilt. The market setup is supportive for early gains with the close over the 1st swing resistance. The near-term upside target is at 1153.18. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 1147.37 and 1153.18, while 1st support hits today at 1133.63 and below there at 1125.69.

NASDAQ:
The March Nasdaq managed a very impressive range up extension in the prior trading session and has managed to hold the brunt of those gains into the Wednesday morning trade. Clearly favorable tech sector news has flowed from a number of sources this week, with favorable merger and buyout news from the Biotech sector seen again overnight. At least in the early trade today, the March Nasdaq would seem to have initial support at even number 1900 and there might be little in the way of resistance until 1912. Unless the market starts to place its vote on health care reform, the bias looks to remain up.

Bonds:
The Treasury market continues to see a number of cross currents that are serving to lock Treasury prices within a tight trading range. On one hand, the bull camp saw a favorable auction for 3 Year notes yesterday, hints from a key Fed member that rates might stay on hold for 3 or 4 more Fed meetings, residual sovereign debt fears and US economic readings that are just unimpressive. However, the market also appears to be undermined by ongoing fears that US debt will continue to explode in the wake of an avalanche of forced 'change' from Washington and the market was also undermined off a suggestion from a US fund manager, that investors avoid US government debt. With the first leg of Treasury auction supply going off solid and a ratings agency overnight suggesting that the UK debt outlook remains negative, the flight to quality angle could leave the Treasury bulls with a minor edge. In fact, seeing the Fed's Evans suggest that US easing looks to remain in place for 6 months, is probably one of the bigger underpins for Treasury prices. On the other hand, an all out push for a highly controversial US Health Care reform act would seem to reiterate the fear that the US doesn't have the slightest interest in reigning in government spending. With another Congressional resignation yesterday, accompanied by statements from that lawmaker, that the US financial situation was much worse than anyone realizes the heat could be turned up on the $21 billion of 10 Year Notes later this morning. While international economic news was partially upbeat from China overnight, that positive tilt was more than offset by soft UK manufacturing output readings and a negative 4th GDP reading from Italy. With a Federal Budget Balance to be released late in the trade today, Treasury Secretary Geithner testifying before the House on the 2011 budget and the auction results expected at mid session, it will be a neat trick if the bulls can get the market to look beyond the supply side of the equation. On the other hand, even Iran was able to auction off 100 million in bonds overnight and therefore one would think that the US would be able to sell its debt! However, earlier in the trading session today, the market will be presented with a US Wholesale Trade Inventories report, which is expected to rise slightly and that could provide a bit of a positive bid to Treasuries. In general, the trade seems to be questioning the recovery track, perhaps because of the extremely thin slate of scheduled data points so far this week. In looking forward, the market will only begin to see first tier economic readings on Friday morning therefore the trade might not get a distinct macro direction on the economy for another two trading sessions. In the mean time, we can't rule out a dip down to the 116-00 level in June Bonds, with a similar dip in June Notes possible seen down to the 116-25 level. The rally off the 3 Year Note auction yesterday was roughly 12 ticks and we would be surprised to see that type of rally today off the 10 year auction results. Pushed into the market we would be lightly short this morning because of the number of supply side issues facing the market later today.

US Dollar:
The Dollar remains bullishly biased in the early trade today and that is somewhat surprising considering the number of cross currents facing the Greenback over the last 24 hours. Supporting the Dollar is news that a ratings agency remains negative toward the UK debt situation and also generally soft UK and Euro zone economic data. Apparently the Dollar bulls are capable of tamping down favorable Chinese trade data overnight, perhaps because the UK and Euro zone data was the last data out. It would seem that the Dollar is being held back today somewhat because of ongoing run away US debt fears, which could be clearly fanned today by a surprising series of readings on US debt. In fact, today the market will see an official US Budget deficit update, Geithner testimony on the 2011 budget and another US Treasury auction and those events could end up being a drag on the slight upward early tilt in the Dollar. With the market seemingly embracing the news of ongoing concern for the UK debt standing, that has seemingly given the Dollar a flight to quality edge early and perhaps news of surging US debt won't serve to knock the Dollar bulls out of control. Critical support in the June Dollar index is seen at 80.97 this morning, with little in the way of resistance until the 81.20 level.

Gold:
As suggested already, the gold market seems to be watching positive leadership from the PGM's overnight and that news is apparently enhanced by press reports of decent demand for gold in the Indian gold trade. Some players are suggesting that a series of daily declines in gold recently set the market up for some bargain hunting buying today. However, a minor rise in the Dollar and ongoing Greek credit term concerns are seen as limiting forces in the Wednesday US gold trade. It would also seem like the bear camp wants to continue to play up the idea that the pace of the global recovery is weak and uneven. It did appear as if the Fed's Evans suggestions yesterday afternoon, about the Fed remaining on hold for another 6 months, helped to lift gold prices. While the market also saw news of a slight decline in physical gold production overnight from a minor producer, the gold market really hasn't paid that much attention to physical supply side stories lately. In the end, the bull camp has to be happy with the ability to rally gold prices early this morning in the face of a weaker Euro.

Silver:
The bulls are making a big deal out of the residual strength in platinum group metals prices this week as that would seem to suggest that sentiment toward industrial and precious metals markets is strengthening. The bulls might also point to the prospect of a tightening of physical silver supply with another minor decline in daily silver exchange warehouse stocks posted overnight. However, supply hasn't exactly been a dominating fundamental force in the silver trade lately and therefore action in equities and other physical commodity markets might continue to be very important to the silver trade. Nonetheless, the silver bulls seem to be able to foster favorable forward demand expectations even in the face of a thin US report slate this week and that in turn could justify silver prices sitting within close proximity to the highest silver price level since January 21st. Like gold, seeing silver prices manage a rise this morning in the face of a higher US Dollar, would seem to suggest that the bulls are managing to win the early battle today.

Crude Oil:
The bull camp's resolve in crude oil will likely be tested today as the market will likely have to weigh a better demand outlook against still ample supplies. The oil market's resiliency has been impressive with April crude oil holding a test of the $80 price level in yesterday's trade and the market seeming to shake off a bearish API report which showed a jump in oil stocks that were three times higher than expectations. The strength in gasoline overnight after API reported a larger than expected drop in product stocks has helped to lift the oil market from overnight lows. The lack of follow through selling would seem to leave crude oil with an upward price bias underpinned by expectations for fuel demand to improve this year. This better demand view is being back by the economic news (smaller decline in Feb payrolls), but also by the EIA raising their global oil demand growth forecast for this year by 270,000 bpd to 1.5 million bpd while also predicting a 200,000 bpd rise in US oil demand this year. The EIA expects most of the global oil demand growth to come from emerging markets and a report showing China's oil imports last month were the second highest on record has certainly been a factor providing some support to oil prices in the overnight trade. Last week China said they would maintain a loose monetary policy and continue fiscal stimulus which has provided reassurance that oil demand in the world's second largest consumer will remain robust this year. The strong trade data from China also throws off a more confident macro economic view which in turn brightens the outlook for oil demand. In fact, crude oil has started to gain some upside traction after OPEC in their monthly report also raised their outlook for global oil demand this year. This improving demand view has helped the oil market shrug off news that Saudi Arabia plans to provide full contracted volumes of oil to all its Asian customers in April except one. It is also a positive sign that oil markets, led by gasoline, have edged higher overnight despite a firmer dollar and a clear lack of direction in equities in the early going. While positive market sentiment seems to remain in place and oil markets appear to have an early upward bias, the problem facing the bull camp is that oil markets have become technically overbought. Most traders are expecting the EIA report to show a 2 million barrel rise in crude oil stocks and higher gasoline supplies. Therefore, a bullish surprise may need to be seen in today's inventory report for April crude oil to make a decisive push above key resistance at the $82.50 price level. The EIA report will certainly set the early tone. But given the market's reaction to the API news, seeing the EIA report an unexpected drop in gasoline stocks is likely to ultimately carry more weight than a rise in oil stocks. If the EIA report is seen as bullish, it should be enough to support a move to test this week's highs while we suspect a bearish reaction to the report will likely end up being short lived given the market's improving macro demand view. With oil market price action also closely tied to the ebb and flow of equities, look for a price dip in crude oil off the EIA data as a buying opportunity as long as equity markets stay positive.

Natural Gas:
While we eventually see April natural gas trending toward the $4.00 price level this spring, the market's technical condition also suggests a short covering bounce could be seen at any time. Daily technical indicators for natural gas have fallen to an oversold extreme and the price action over the last two days hints that the market may be finding some temporary support in the $4.45 to $4.50 price range. The wide price spread between crude oil and natural gas in btu terms may attract some bargain hunter buying to natural gas. But rally attempts in natural gas should end up being short lived since the supply/demand outlook remains weak and forecast for a temperature warm up into mid-March raise the risk of an early start to the injection season. While the EIA is predicting natural gas production to fall by 1.64 billion cubic feet per day this year, it would seem to be offset by their forecast for liquefied natural gas imports to rise by 1.80 bcf per day while expecting only a.7% increase in demand this year over 2009 levels. The EIA outlook suggests industrial fuel demand will be slow to return while the steady rise in the producer rig count implies storage levels could see a hefty build this spring. In the short-run there may be some technical risk for shorts, but that may be limited to the $4.80 to $4.90 price range while bearish sentiment and the market's entrenched downtrend will keep downside price risk in place.