After spending the first moments of the trading session swimming in red ink the S&P500 managed to find support at an old friend, the 1,135 level. As you may recall, 1,135 was the low on the day Ben Bernanke delivered his Jackson Hole speech in late August so it wasn’t surprising to see it come into play again today. The markets then managed to melt higher, surging the last half hour of the day. The stage had been set much earlier in the day though as the German Dax Composite smashed thru key resistance at 5,600 and led European markets higher.
Other bullish factors at work was the price action in our two favorite macro commodities, copper and oil. Copper had its best day in months, rallying over 4% after spending the last week basing. The industrial metal is now perched below an expected resistance zone between $3.30-$3.50 and will need to stay above the $3.10-$3.15 range in order for today’s breakout to have validity. Oil meanwhile closed above resistance at $82.50 and now has a clear short-term bottom in place. If the price can remain above $80 then the case can be made that oil may be ready to test resistance at $90, the home of its September highs.
It doesn’t stop there though, the financial sector rallied strongly today, with XLF tacking on 3%. The ETF now has its work cut out for it as attempts to prove that this rally is for real. First resistance is at $12.50, with “trend-changing” resistance at $13.50. We use the term trend changing because until XLF is able to get back above $13.50 the chart will still be in poor shape technically. Also aiding the bulls today was the fact that the dollar traded lower again, but it should be noted that the greenback closed above support at $78.50. The VIX also settled lower and is now down 20% in 3 days, but notice that the “fear index” closed above its rising 50 day moving average (35.64). Should the markets press higher, watch to see if the VIX sinks below this key average as a sign that the rally has further to go, if it doesn’t it could be an early indicator that the bears are about to come out.
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