The markets started the day on a high note yesterday, influenced by what seemed to be an agreement between Germany and France to endorse fiscal discipline into EU treaties. But just after lunch in New York, 15 of the euro zone countries were placed on negative credit watch by S&P. Two of the countries were triple-A-rated Germany and France, along with the Netherlands, Austria, Finland and Luxembourg.
At the close, the Dow Jones Industrial Average was up 0.65%, the S&P 500 rose 1.03%, and the Nasdaq gained 1.1%. Advancers led decliners on the NYSE by 3.5-to-1, and on the Nasdaq, advancers led by 2.3-to-1. The NYSE traded 891 million shares while the Nasdaq crossed 449 million shares.
Despite more volatility than we saw on Friday, little has changed with the technical picture. In order to keep the momentum positive, the indices must punch through significant resistance.
For the S&P 500, the first resistance is at the 200-day moving average and the bearish resistance line, both at 1,265, then the November high at 1,278, and the October high at 1,292. Support for the S&P 500 is at 1,220.�
The Nasdaq�s first line of resistance is its 200-day moving average at 2,673. Support rests at its 50-day moving average at 2,592.
Another major focus is the U.S. dollar, and the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) currently has support at its 50-day moving average just under $22 with major support at its 200-day moving average at $21.60.
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The Dow Jones Industrial Average has been trading above its 200-day moving average for five days, and so its next resistance is at Friday�s high of 12,191, and then the October high of 12,303.�
Dow Theorists will want to watch the 12,303 line since a close above it could signal a Dow Theory buy signal. But first its companion index, the Dow Jones Transportation Average, must break yesterday�s high of 5,067. If it stalls and reverses then the breakout could turn into a double-top.
Conclusion: The focus is still on Europe so anything can happen. But the majorU.S. indices have evolved into more positive trends. It is still too early to jump onto the bull�s wagon since conviction is lacking in the form of volume and breadth.
Perhaps we will know by the end of this week if a solid European agreement can be reached. If it happens, a ride on Santa�s sleigh through the end of December is not out of reach. But, for now, it is best to watch and wait, or play the volatility with options. The Europeans have a habit of putting a damper on the stock market.
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