The answer to these questions is likely tied to the state of the U.S. dollar trade and market expectations for what the Fed may do next and when. In short, anything suggesting that the Fed could remain “patient” for a while longer and not start to raise rates in June is seen as a plus by the fast-money sorts on Wall Street.
Looking at our unemotional market models, the overall environment has moved up into the moderately positive zone. The question of course, is if the bulls will be able to hold onto move the ball up the field this time or simple succumb to the selling that is likely waiting at S&P 2120.
Although it seems impossible, the market is once again bumping up against an important technical level on the charts. As we’ve been saying, the good news is that there is a prominent, intermediate-term uptrend line on the chart of the S&P 500 at this time. The bad news is that stocks are now overbought from a short-term perspective and there is a zone of resistance to deal with just above current prices. And since all traders and their computers are likely well aware of the key lines in the sand (the uptrend line and the old high at 2120ish) we will contend that the price action in the coming days will be important.
S&P 500 Index – Daily
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Turning to This Morning…
The talking points are the same on this fine Monday morning. Traders are still watching the situation in Europe/Greece, the economy in China, the price of oil, the action in the dollar, and the impact the dollar’s surge is expected to have on the earnings of multinational companies next month. On the last point, according to FactSet, companies that generate more than 50% of their sales outside of the United States are expected to see earnings decline by 11.6% on average in Q1 while companies with sales less than half outside the U.S. are expected to post flat earnings for the quarter. The key is that in September, analysts had expected S&P 500 profits to grow by 9.5% in Q1. Looking abroad, Chinese stocks were up for a 9th consecutive session on continued expectation for monetary stimulus. In Europe, stocks are down on tough talk out of Germany with regard to Greece. And on the oil front, futures are moving lower on Saudi comments relating to OPEC’s inability to cut production. Finally, U.S. futures are pointing to a modestly lower open on Wall Street.