Equity futures markets are trading higher ahead of the U.S. opening after a mixed trade overnight. Asian markets finished higher, but Europe traded mostly lower. News that China’s trade surplus narrowed to $20 billion helped boost Asian equity markets.
Yesterday, U.S. stocks rose after Weekly Jobless Claims declined and the trade deficit improved. After an early session rally, however, volume dried up, stocks fell from their highs, but still managed to close positive.
Money flowed out of gold and Treasury markets on Thursday. This could be a sign of an impending rally in the equity markets. Traders liquidated T-Bond positions in anticipation of an improving economy. Gold fell after concerns about European sovereign debt issues were alleviated.
The thin trading conditions on Thursday were most likely caused by the absence of major players because of the Jewish holiday. We may see more of the same today because of the lack of major economic reports, but a press conference by President Obama could create some volatility and trigger a rally if he says something positive about the economy. Many traders are expecting him to talk about economic stimulus and jobs creation.
Yesterday the September E-mini S&P 500 turned higher when it crossed the last swing top but the thin trading conditions killed any chance of a breakout. This morning this market is clawing back and seems ready to challenge Thursday’s high at 1112.00.
With money on the sidelines and ready to be invested, all investors need to hear is something positive about the economy and the funds are likely to be put to work in the equity markets. This could trigger the start of a strong breakout rally.
December Treasury Bonds are trading slightly better this morning, but should break if stocks mount a strong rally.
T-Bonds are testing a key 50% level at 130’17. A break through this level means a further decline and a test of the last swing bottom at 130’12. A violation of this level will turn the main trend down on the daily chart for the first time in months. Depending on the volume today, this market has the potential to fall to the Fibonacci retracement level at 129’11.
December Gold also looks vulnerable with $1238.20 the next likely downside target. A rally in stocks will likely encourage investors to shed their gold positions placed as a hedge against economic uncertainty.
Technically, I can build a case for a major distribution pattern developing especially if the rumors are true that central banks are selling gold.
Watch $1251.10 today carefully. This is last week’s close. A failure to close above this price may be an indication of a major top formation.
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