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Friday, February 8, 2013

Expect the Market to Pull Back Before Month’s End

 A test of the S&P 500 line at 1,475 is likely in late February


Trade of the Day Chart Key
On Thursday, the dollar spiked up against a basket of currencies after European Central Bank (ECB) President Mario Draghi voiced concern over strength in the euro, and immediately after that the dollar jumped. This advance caused selling pressure on commodities and stocks.
The chart of the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) shows that it is at the top of a triangle that, if broken, could lead to a further advance. Note the buy signal from the MACD.
The powerful January uptrend has slowed, as illustrated by the falling momentum graph. But despite the currency pressures, the low of the day rebounded from just under 1,500 to close in the higher range of the day.
Conclusion: It’s beginning to feel like old times with European concerns creating unwanted headline risks. The rate of advance has slowed, and a close under 1,500 could result in a quick penetration of the 20-day moving average line at 1,493 and a quick test of the major support line at 1,475. But the bull is very much in charge and a near-term pullback would be welcome for bargain hunters.
Ed Hyman, chairman and founder of ISI Group, may have it right. He recently said, “While many continue to look for a major sell-off, I just don’t think so, believing we will trade higher into the State of the Union [Feb. 12], which should serve as the bears’ chance to finally get a 5% – 7% pullback.”

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