S&P Sparks, but Momentum Could Stall
The stock market has been on a roll this week, but the outlook is far from certain at this point. I'll take a look what the charts show in S&P futures, and also gold, which has struggled as equities have rebounded.
In economic news, the stock market got a lift from a stronger-than-expected January retail sales report Wednesday, and early this morning, weekly jobless data showed a drop in claims of 9,000 to 348,000 in the week ended Feb. 9.
Federal Reserve Chairman Ben Bernanke testified before the Senate banking Committee this morning. He signaled there was room for the Fed to cut rates further amid continued economic malaise, but was optimistic the economy would recover by year-end.
"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," Bernanke said.
The stock market certainly seems to like cheap money but is treading water in early trade. From a technical standpoint, day-traders should watch for signs of exhaustion after three strong sessions, and use pivot resistance numbers for possible selling opportunities in S&P futures.
On Wednesday, February 13, March S&P 500 futures closed higher and above the 10-day moving average at 1355. Momentum indicators, the stochastics and relative strength index, are turning neutral to more bullish. However, I think the market needs a close above 1399, the reactionary high, to renew upside momentum within the trading range between 1325 and 1397.
If March S&P closes under 1312, the door is opened for a move down to 1255. While we've seen some signs of improvement in the market overall this week, the underlying bias not fully bullish yet. I would like to see the market keep moving higher and close better, and feel this three-day rally could stall at 1385.
Gold
April gold futures closed above the 20-day moving average at $910 an ounce on Wednesday. While that's constructive, the RSI and stochastics are neutral to bearish and I see a possible head-and-shoulders pattern forming on the chart. I see this as a signal of a tight trading range that could break lower, but the verdict is still out. Watch the dollar and the euro for some clues, gold and the dollar tend to trade inversely to each other.
The market needs a close above $931, the old reactionary high, to spark a move up to $942. Support is at $899 and $888.
Good luck and good trading!
Jeffrey Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com if you have questions on this topic or to discuss specific trading strategies for your unique situation in this or other markets.
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