STOCK RALLY STALLS AT 200-DAY AVERAGE... This past week's impressive stock rally ran into some profit-taking on Friday just shy of 200-day moving averages. Charts 1 and 2 show the S&P 500 and the Nasdaq Composite closing near the their daily lows after nearing that important resistance barrier. The daily stochastic lines below Chart 1 turned up from a short-term oversold reading (below 20) which helped support this week's strong rebound. The two lines, however, are already nearing overbought territory over 80. Needless to say, those market indexes need to clear their 200-day lines if this week's rally is going to turn into something more meaningful.
DOLLAR BOUNCES OFF 50-DAY LINE ... Part of Friday's stock selling may be the result of a bouncing dollar. Chart 3 shows the DB Bullish Dollar ETF (UUP) bouncing off its 50-day average on Friday. The main reason for that was a drop in the Euro (which accounts for 56% of the UUP). Chart 4 shows the Euro selling off on Friday and remaining below its 50-day line. Global markets may need to see more of a bounce in the Euro to continue this week's central bank-inspired enthusiasm.
COMMODITIES TRACK STOCKS CLOSELY... Commodities rallied this week along with stocks, which continues their yearlong pattern of trending together. Chart 5 shows the DB Commodities Tracking Fund (DBC) ending the week above its 50-day average, but well below its November high. A trendline drawn over the July/August highs also comes into play near the November high as well. The DBC would have to clear both barriers to turn its trend higher in more decisive fashion. The line below Chart 6 shows how closely the S&P 500 has been tracking commodities.
VIX DROPS TO 200-DAY LINE... This week's stock rally pushed the CBOE Volatility (VIX) Index sharply lower during the week. That makes sense since the VIX and stock market trend in opposite directions. Interestingly, the VIX is now testing potential support at its 200-day moving average (just as the S&P 500 is meeting resistance at its 200-day line). What the VIX does at that support line will help determine if this week's stock rally has any real staying power.
