What’s going down on the markets? As always, I use the S&P 500 to gauge overall sentiment, so here it goes.
What you see here is a daily chart with a 4 year trend channel. The dotted line in the middle is the mean (very important). As you can see, prices have slumped off of the upper levels of the channel and prices are also having a difficult time taking out the mean. Such action indicates supply overcoming demand or an exhaustion of demand.
Secondly, you see a lateral range with a mean as well. What you will see if that recently, the mean of the range acted as a resistance point until a couple of days ago. What’s interesting is that this rally is occurring on light volume while price spread/daily range is also tightening (it’s early in the day as I post this, so today’s spread could definitely increase), which indicates that there may not be much demand in this rally and to expect another drop in prices soon.
I think that a key area to watch will be the 2120 area. That is where both the mean and the upper level of the trading range is at. If that area isn’t taken out, I think we’ll see further weakness.
I am also of the opinion that the dollar will continue to rise. I’d like to see U.S. Dollar futures come down and test that 93-94 area, preferably a sluggish fall on light volume, before rallying. If the dollar falls and then rises, that would increase the probability that we will see the major indexes rally before they fall. Besides, speaking fundamentally, I’m not sure if one would really want to buck the potential that the Fed is claiming that they will raise interest rates sometime this year. I think the U.S. Dollar Futures market is about to price in that information.