Sunday, December 26, 2010

Weekly Forecast - Dec. 26th

Hope everyone is having a good holiday season so far.  The year is finally wrapping up as we head into the last week of the year.  This week will be a full week since The Street doesn't take off for New Years Eve.

The S&P continues to push higher as the bulls inch past any resistance that stands in their way.  We haven't had many pullbacks or corrections but instead getting areas of consolidation.  These areas of consolidation are starting to happen more frequently which is expected after the run up we've been having.  The SPX could pull back to 1246 or even as far as 1226.  We are trending far away from the 50 day moving average.  This is usually a good sign of being overextended and the market could consolidate or pullback to the 50 day moving average.

The EUR/USD pair had a solid breakout to retest the under side of the trendline and quickly sell off.  We are seeing a consolidation on the 200 and 150 day moving averages.  These two moving averages coming together act has strong support so we could see a bounce here.  A break of these levels would be strong move for the bears.

The pound/dollar has been moving nicely around support and resistance lines.  Gaining support off of 1.534 price level and the 200 day moving average we've seen a nice bounce.  We could see a retest of 1.5524 before another sell off takes place.  At that price we would see the 150 day moving average move in and add extra resistance.  On a much larger scale we could see a head and shoulders forming at the 1.534 which would be especially nice to see the right shoulder form after hitting the 50 day moving average.  Of course we will deal with this when and if it happens.

The dollar/yen has been putting in good support at 82.79.  A good bounce here could mean a little weakness in equities.  Real weakness in equities won't happen until we break 84.41.  What I am more interested in watching is the 50 day moving average.  In the past we've seen a perfect play off of the 50 day in the USD/JPY so I will continue to watch for a break or bounce here. 

The NYSI reversal indicator finally got the cross last week and the market moved up about 1%.  The reversal indicator is a great tool to help judge future market sentiment and when the market shifts directions.  One thing to take note is that the market can reverse in the middle of the indicator but after it hits an extreme and crosses it usually heads in that direction. 

Economic reports will be light this week with Consumer Confidence on Tuesday and Home Sales and Jobless Claims on Thursday. 

Overall this should be a light week with low volume for the holidays and the few economic reports due out.  I would expect little overall movement out of the market, but the overall trend should continue to be up.  Dip buying continues to be strong and should still be expected until we see some reason against it.  Be careful opening up new positions with the low volume. 

Enjoy the rest of the year and good luck on your trades.

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