Morning Commentary for Monday, February 7, 2011

by Steven Chanin on February 7, 2011

Good Morning SOM traders…The bull market continues! It shrugs off any bad economic news and each pull back continues to be viewed as a buying opportunity, especially by those who missed out on last year’s run and fund managers whose performance is measured against the S&P. Further, the bears who get short on a pullback, thinking it’s the beginning of a correction (like a week ago Friday on Egypt), are quickly forced to cover as buyers come in. The difference between rising markets and falling markets is that rising markets need a continual supply of fuel either from inflows or sector rotation. Last month there were large cash inflows, including ETFs ($19B) and mutual funds ($12B). Any time a market sector sold off, the funds were moved to a different sector rather than being withdrawn. So this market has been getting fuel from both and until that changes the long term bull trend will remain in place. Looking forward…we have a mercifully quiet week of economic news with only Thursday and Friday having announcements that could move the markets (all announcements are pre-market, 8:30am, unless indicated and all times are EST) – Thursday: Weekly Jobless Claims and Friday: International trade, Consumer Sentiment (9:55). Overnight the Asian markets were mixed/basically flat, and at the time of this writing Europe is up slightly (1/2%) and U.S. index futures are also slightly higher.

Technicals…By Tuesday of last week the prior Friday’s sell-off had been filled and then surpassed with new highs being made post 2008. The NDX and RUT that broke below their 20EMAs broke right back above. The NDX is now in uncharted waters with the prior swing high being in the pre-2001 crash so all we have for the NDX are Fibonacci retracements from the 2000 swing high of $4,000 to the 2008 swing low of $1,000 for potential resistance. Based on the size of the candles over the last few weeks and with the VIX closing below $16 on Friday it appears that the speed of bull run has slowed. Here is what I see for technical support/resistance (all MAs are 6 month Exponential):
DJI: support: $11,888 (20 EMA), resistance: $13,150 (2008 swing high)
SPX: support: $1,289 (20 EMA), resistance: $1,433 (2008 swing high)
NDX: support: $2,195 (20 EMA), resistance: $2,537 (50% Fibo.)
RUT: support: $790 (20 EMA), resistance: $800 (swing high)

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