Wednesday, February 8, 2012

Morning Market Analysis

Yesterday, prices gapped lower at the open, dropped, then rallied to just above the previous days close, where they then moved sideways for the remainder of the day.  This has a hope fueled rally with traders looking for a positive resolution to the Greek crisis.

Yesterday, the SPYs were up .25% -- which is not much of a rally.  So, it's important o keep an eye on support levels.  Right now -- after the gap higher on Friday -- we see support forming at the 134.

Yesterday, the dollar broke through the 200 day EMA -- which had operated as technical support  -- and started to move lower.   The reason for the move was Bernanke's reiteration of the Fed's decision to keep rates low until 2014.  What's important about the dollar chart is it has lost its safety bid appeal from the EU situation, and, there is a lack of benefit from a bullish US economic situation.  Instead, traders are focused firmly and predominantly on interest rate policy.

The primary cause for concern is the Russell 2000, which is moving sideways for the last three days.  At this point, a downward move lasting 3-5 days would be welcome, as it would allow traders to take some profits and let new traders take positions.

The long end of the treasury market is now at support.  Notice the incredibly muted readings on the EMAs, MACD and volume indicators.

Unlike the TLTs, the IEFs and IEIs still have some room to move lower before they hit support.

Ideally, with the market rallying, we'd like to see the treasury market start to sell off and break support, which would add further fuel to the rally.  However, there is still enough of a safety bid out there to keep these markets high.

The net positive for the equity markets is they rallied yesterday after gapping lower at the open and then continuing to move lower for the first 30 minutes of trading.  We saw the same trend the preceding day.   So far, the bulls