Morning Commentary for Monday, January 31, 2011

by Steven Chanin on January 31, 2011

Good Morning SOM traders. Last Friday the U.S. markets had a news jolt from overseas. While the direct correlation between political unrest in Egypt (and potentially other Arab nations) and the U.S. markets isn’t obvious it is yet another example of the interconnected global economy. Personally I would think that the US markets are now viewed by overseas investors as an even more attractive and safer which could easily add additional fuel to the longer term bull run we still have in place. Many believe that because the U.S. markets have been in such a long and extreme bull run that this would be a catalyst for a true correction. Others believe it would be a short term “one-off” with a move back up this week, unless the political contagion spreads or develops into something more sinister, and that the long term bull, supported by the flood of cash from “Uncle Ben”, could not be stopped. Based on the futures this morning it appears that the later may be the case although vigilance this week is required! Looking forward…here are this week’s economic announcements, ending on Friday with the “biggie”, that could move the markets (all announcements are pre-market, 8:30am, unless indicated and all times are EST) – Today: Personal Income, Tuesday: ISM Manufacturing (10:00), Thursday: Weekly Jobless Claims and Friday: Monthly Employment Report. Overnight the Asian markets were over 1% lower, and at the time of this writing Europe is mixed and the U.S. index futures are up off their over-night lows.

Technicals…Let me say, yet again, that news events ALWAYS trump techincals and makes them irrelevant in the short term! Last Friday’s sell-off had some technical divergence with the support of the 20EMAs. The DJI bounced off almost to the penny and closed above, the SPX closed just below, the NDX closed well below and the RUT broke strongly lower closing just 6 points above its 50 EMA. Here is what I see for technical support/resistance (all MAs are 6 month Exponential):
DJI: support $11,794 (20 EMA) resistance $11,905 (prior swing high)
SPX: support: $1,252 (50 EMA) resistance $1,310 (2008 swing high)
NDX: support $2,232 (50 EMA), resistance $2,284 (20 EMA)
RUT: support $770 (50 EMA), resistance $786 (20 EMA)

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