Euro vs. US Dollar May Benefit

Given the uncertainty and confusion surrounding the upcoming confirmation hearings of Ben Bernanke, the Euro versus the US Dollar (EUR/USD) may be a good short term long.

The EUR/USD pair has definitely lost its bullish stride. Side note, may be a reason why the market paused or potentially started the long awaited reversal / pull-back.

If you look at the all-time chart below, you will see that there is good support around the 1.38 level. That is the previous all-time high resistance level, which held until 2007. It is also the 50% Fibonacci retracement level from the lows of 2009 to the recent highs of December 2009.


For now, though, look at a 20 day two hour chart. You can clearly see a sideways pattern, with a clear violation of support around the 1.4268 level.


Trigger: A break of the most recent highs, around the 1.4165 level (look at the five day hourly chart below).

Target: Previous support, with a couple of pips below, at around the 1.4268 level

Stop: Break of the support area around the 1.4097 level.

Bear Teaser? Stock Market Week Ahead

What a crazy week we just had in the stock market. With Tuesday's higher close, and an almost certain Republican victory on hand that evening for the open Senate seat in Massachusetts by Scott Brown, the logical thinking would be that prices would keep going higher.

Even the pundits were screaming buys - Jim Cramer, Larry Kudlow and many others; although, it is not a stretch for them to be mad market bulls. The logic behind the thinking was that with his win, the health care bill would be dead and gridlock would be back in Congress.

Obviously, the market's reaction was quite the contrary. Prices slid the most in a very long time. It could be attributed to the new "Volcker Rule", the continued anti-bank populist rhetoric. It could be that stocks are not reflecting well to positive earnings. It may even be the possibility of tightening by China. Or, could it be the unraveling of the Euro, thanks to the uncertainty of Greece?

Whatever the cause, we as traders only care to see the what - what the market is telling us. Currently, it is telling us that we are at a cautionary point. Last week's sell-off was bearish, but in the context of the current run from last March, it may be just a necessary pull-back.

A lot of eyes will be on Apple's and Microsoft's earnings this week. For a complete list of earnings this week, click here. More importantly will be the much anticipated tablet/product launch from Apple on Wednesday.

Not expecting much from the FOMC vote on Wednesday, but the language will be one to watch.

Wednesday night, President Obama will give his State of the Union address to Congress and the public.

Finally, the biggest unknown, and potential market mover will the confirmation vote of Ben Bernanke, which is to come later in the week.

I would love to see this market go down a little tomorrow, possibly test the S&P 500 1085 level range, then bounce back up into resistance for possible short entries. I like the underbelly of the YTD range on the SPY, which is around the 113 level. But, with so many possible news making events scheduled for this week, I plan to be very nimble and tread lightly.

Consumers Are Still Insecure

Consumer confidence came in less than expected. Personally, this was somewhat of a surprise, because I thought with the recent rise in the stock market and lack of "bad economic press", it would have translated into higher consumer confidence levels.

The stock market internals have weakened, as expected. We are very close to taking out yesterday's lows. Today's close will be critical, because there is a reversal pattern forming on a daily chart.

It is no surprise that the stock market is selling off today, given its two week parabolic move higher. The MACD's were warning us yesterday, as there it was diverging from price. Think of it like the smoke that preludes a volcanic eruption.

Fibonacci retracements are a great tool to utilize when you have parabolic movements in price. Given the strength of the move, you typically get retracements to the 23% and 38% levels before resuming trend.

Below, is a chart of the /ES with the Fibonacci retracement levels drawn from the lows of July 13th (the start of the bull run) to yesterday's high.

My first price target on the /ES is around the 955 level. There are other confirming signals around that level which may act as support.

• The 955 level is around the previous resistance level (953).
• There is price congestion around that level, as noted on the chart below.
• The hourly 200 simple moving average (SMA) is approaching the 955 level.
• The 23% Fibonacci retracement level is also around the 955 level.

Bounced As Expected; Now What?

Now that we got the bounce, you will want to watch how the market internals improve. If this is a reversal, from weakness to strength, you will see it in the internals. Typically, they will trend higher, pause, go sideways and then continue higher.

Another key factor you will need to watch will be whether we can take out yesterday's high on the S&P 500, or as I do, watch the S&P 500 futures (/ES) take out first, the overnight high (981.50) then continue to take out yesterday's high of 984.

If it fails, it will be a failed new high, and should send prices lower. How low, will depend on the internals and if we take out yesterday's low (/ES: 969).

Expect some indecision into the consumer confidence numbers at 10:00 AM.

Expecting a Bounce At the Open

I am expecting a bounce at the open of the stock market this morning. The S&P 500 futures (/ES) are trading down 7 handles (points) at around the 973 level.

Yesterday's low was around the 969 level, before we popped and closed higher on the day. This level should attract buyers who missed that level yesterday, causing a technical "double-bottom".

Today's S1 (support level one) pivot is around the 971 level.

Finally, the MACD on the /ES is coming down to a longer support on an hourly chart.

At 9:00 AM, we will get the Case-Schiller reports on housing. This will be the third economic report we receive on housing. The previous two, Existing Home Sales, and New Home Sales reports were received well by the market. Today's report should confirm the former reports. Though, it was interesting to see that the stock market did not react as expected to yesterday's impressive New Home Sales report. It did get a very short term pop, only to sell-off after the fact.

Last night, Jim Cramer mentioned on his Mad Money program, that this type of action is typically a prelude to a brief pause in an over-bought environment. He did mention that Ron Insana, who predicted the price run in the housing sector, is more cautious and sees a more scary sell-off only to regroup and continue its march higher. Jim does not concur; just as he didn't when Ron made the call on the housing sector.

Lastly, do not forget that we will get consumer confidence at 10:00 AM.