Sunday, January 2, 2011

Weekly Forecast - Jan. 2

Luckily this year we get to start the year off with a full week.  Volume and the markets have been dreadfully slow the last couple of weeks due to the holidays.  Between traders taking vacation and the big snow storm shutting people down up north we saw the volume dry up.  Now we have a new year and a new beginning.  Everyone's portfolio is now reset back at 0% so lets kick this year off right.

The S&P 500 has continued to push higher since September 1st.  It has had some minor corrections but mostly consolidations before another push higher.  We've seen resistance after resistance get passed up and never returned to again.  The next target for the bulls will be the 1260 level.  The bears will need to start taking back a couple of price levels before putting any damage in this bull run.  Besides taking back the 1246 level the bears will need to take the 1232 level.  This is the low on 12/16 and taking this level would represent a lower-low being formed.  As we can see we now have some smaller, weaker, trendlines and channels being formed.  The main one to watch is the upward channel that has the SPX trapped.  Currently we are trading in the middle of the channel with the 50 day moving average trading about 3.5% away.  We do have the 10 day moving average (not shown on this chart) acting as support right now.

The EUR/USD has been on a tear as of late.  It saw a hearty bounce off of the 200 day moving average and it looks to retake the 50 day moving average.  We should see a bit of weakness out of this pair since it has had 3 big up days.  I wouldn't expect any real weakness to come out of this pair.  Started trading in a nice channel but could find resistance at the 50 day.

The pound was trading between the 150 day and the 200 day moving average for a week or so but saw a nice breakout last Friday.  It too looks like it will be heading for the 50 day  moving average in hopes of retaking it.  Again, longer term we could see the making of a head and shoulders as we start the right shoulder.  Still a little to soon to tell, but something to keep an eye on as we progress in the weeks.  No real weakness out of the GBP/USD until it breaks 1.53.  This has been a key support and would now mean a break of the 200 day moving average.  Bulls would like to see a break of the 1.59 price level to end the pattern of lower-lows and lower-highs we have right now.  We have a downward trendline (not shown on chart) following the lower-highs so we could see resistance at 1.57.

USD/JPY has been on a downward trend for a couple of weeks so we might see a bounce play step in.  If the pair does bounce I would look for a retest of the 82 level before turning around and heading back down.  The 50 day moving average has been an important indicator in the USD/JPY so continue to watch that for specific signals.

The NYSI reversal indicator completed its cross last week and is now moving back up.  This is a good time to remain long and be careful of entering shorts.  We want to see this indicator run into the extremes before getting serious about short positions or tightening up our stop-loss orders.

This week is going to be busy with economic reports and data:

Monday: ISM Mfg Index and Construction Spending
Tuesday: Car Sales and FOMC minutes
Wednesday: Employment Report and ISM Non-Mfg Index
Thursday: Jobless Claims
Friday: Employment Situation and Ben Bernanke Speaks

This week could show some weakness as it continues to consolidate.  The charts do have some room for pullbacks and we could see that happen.  Lately we have seen some weakness in the big players of the market (NFLX, AMZN, AAPL, BIDU, CMG, CREE, OPEN, etc).  Watching the market leaders is always a good indicator of how the market will perform as a whole.  However, the week should end positive as the bulls continue to push and as dip buying remains strong.  The bulls have a lot of upside potential in the market.  The bears need to start taking over some serious price levels if they hope to have a chance to create a correction in this market.  I would continue to remain majority long going forward in the week.  If you feel the need to short make sure the pattern is strong and keep those stop-loss orders tight.

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