During the last week, it has felt like the "the good old
days" were back, as U.S. stocks opened higher in reaction to strong
European markets and a weaker U.S. dollar. But will the dollar fall
further and support the recent bounce in commodities and the broad
market, or is this just another holiday bear trap?
Despite support from a falling dollar, the S&P 500 has not
been able to close above its 50-day moving average at 1,327. It
just doesn't seem able to bring in enough high-volume buyers to
move through the resistance at 1,332. But a break above that number
and the resistance line at 1,342 would change the picture and give
buyers a reason to make big commitments. The internal indicators,
like the stochastic, are oversold and ready to flash a buy signal,
but until the resistance is overcome, we must go with the chart,
which shows that the broad market is still in a correction.
The technology sector has been a drag on both Nasdaq and the
S&P 500, and that's been mostly because of the weakness in
semiconductor stocks. But yesterday the semis, as represented by
the
Semiconductor HOLDRs Trust
(NYSE:
SMH
), reversed field at just the last moment and closed above their
bullish support line and 50-day moving average at $35. The
stochastic is turning up, and that supports a move higher. But like
the chart of the S&P 500, it needs to move into the resistance
around $36 and mount an attack on the
double-top
at $36 to $36.50.
Commodities have had a nice bounce, and the
Energy Select Sector SPDR
(NYSE:
XLE
) shows a nice reversal from the
double-bottom
at $73. But like the other charts, the XLE must hold above the
50-day moving average and mount an attack on the double-top in
order to turn the tide. The stochastic gave a buy signal on
Wednesday, but is it just a signal that the rally is an oversold
bounce or something more important?
The dollar's weakness has been the most important driving factor
in the recent commodity and stock market rally. The
PowerShares DB US Dollar Index Bullish Fund
(NYSE:
UUP
) shows the formidable overhead that the dollar has to overcome in
order to keep its uptrend going. But it gapped above the 50-day
moving average at $21.50, and that's a positive for it and a
negative for stocks. It would be a shock to the other markets if
the dollar rallied and drove UUP through its resistance line at
$22. But the stochastic is overbought and if the buck has another
big drop driving UUP under the blue line, stocks could make a leap
forward.
Conclusion:
Until more evidence accumulates that the dollar is pulling back,
the other markets will most likely hesitate just under their major
resistance lines. I'm cautiously bullish but would like to
see more evidence that the dollar is headed lower before jumping
onto the next train to greener pastures.
For one oil stock to buy, see the
Trade of the Day
.
Today's Trading Landscape
To see a list of the companies reporting earnings today,
click here
.
For a list of this week's economic reports due out,
click here
.
