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Wednesday, December 8, 2010

WALL STREET >>> Rising Dollar Eases Tax Deal Rally

SPX, COMP Tag Two-Year Peaks Before Bullish Momentum Wanes
A near triple-digit rally on Wall Street evaporated on Tuesday as initial enthusiasm for an apparent compromise on extending the Bush tax cuts was overshadowed by a resurgent U.S. dollar and Democratic dissension to the tax deal.

All eyes were on Washington on Tuesday as Wall Street was caught off guard by the apparent deal to prevent taxes from rising on all Americans at the end of the year. The markets initially cheered the news, especially stimulative measures in the compromise.

Stocks kicked off the session on a high note at the opening bell, as the Street applauded the latest news from Capitol Hill. More specifically, President Obama and the Republican leaders of Congress announced a deal to extend Bush-era tax cuts – which were set to expire at the end of the year – for two years, which many economists expect will help loosen America's proverbial purse strings. In the same vein, the bipartisan package included a one-year extension on payroll taxes, as well as an extension of unemployment benefits. "This is real money for real people," said the president. "This package will help strengthen the recovery. That I'm confident about."

However, many of his fellow Democrats -- who still need to sign off on the cuts -- openly criticized the commander-in-chief's pact with the GOP. After a meeting with Vice President Joe Biden and fellow rank-and-file Democratic senators, and ahead of a closed-door meeting among House Democrats, Senate Majority Leader Harry Reid, D-Nev, said the arrangement wasn't yet a done deal. "We're going to have to do some more work," he said. Against this uncertain backdrop, and in light of a strengthening dollar, the bulls' momentum lost steam in the final hour of trading – but not before both the S&P 500 Index (SPX) and Nasdaq Composite (COMP) could tag fresh two-year peaks.

After coming just a hair's breadth shy of its own new high, the Dow Jones Industrial Average (DJIA – 11,359.16) whittled away its gains throughout the latter half of the session, finishing on a deficit of 3.03 points, or 0.03%.
General Electric (GE) led the Dow's 17 advancing equities, while 3M Corp. (MMM) paced the 13 declining blue chips with a loss of more than 3%. Despite today's late-session run into the red, though, the DJIA remains comfortably north of its 10-day moving average.

DJIA Technical Outlook >>> The Dow closed lower due to profit taking on Tuesday as it consolidated some of the rally off November's low. The low-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If the Dow extends the aforementioned rally, the August 2008 high crossing at 11,867 is the next upside target. Closes below the 20-day moving average crossing at 11,203 would temper the near-term bullish outlook in the market. First resistance is today's high crossing at 11,450. Second resistance is the August 2008 high crossing at 11,867. First support is the 20-day moving average crossing at 11,203. Second support is November's low crossing at 10,929.

The S&P 500 Index (SPX – 1,223.75) also gave up most of its intraday lead by the closing bell, but managed to eke out a gain of 0.6 point, or 0.05%. What's more, the broad-market barometer rallied as high as 1,235.05 – its loftiest level since September 2008 – before pulling back in afternoon trading.

In similar fashion, the Nasdaq Composite (COMP – 2,598.49) soared as high as 2,623.60 – its first foray above the 2,600 level since January 2008 – before settling on a slimmer gain of 3.6 points, or 0.1%.

“You can’t [overstate] how positive this is” for stock prices, said Art Hogan, chief market strategist at Jefferies & Co. He said he doesn’t believe the tax deal was built into stock prices, adding, “I think this is an event that has more legs to it.”

However, a gain of nearly 90 points on the Dow vanished late in the day as the dollar rallied and Democratic leaders warned the deal on taxes is not yet done.

If Congress is unable to reach a compromise on the tax cuts, “We’re going to be in for one heck of a bumpy ride,” Ted Weisberg, a veteran NYSE trader from Seaport Securities, told FOX Business. “If it does, it eliminates a huge, huge unknown for investors, traders, businessmen -- for everybody.”

Crude futures retreated from record highs amid widespread profit taking
Crude oil futures pulled back from two-year highs today, thanks to a strengthening dollar and a widespread round of profit taking. Furthermore, a government agency predicted an increase in global crude supplies for 2011. Against this backdrop, January-dated crude futures ended on a loss of $0.69, or 0.8%, at $88.69 per barrel, after topping out at $90.78 per barrel – black gold's loftiest intraday price since Oct. 8, 2008 – earlier in the session.
Some commodities also dipped into the red as the euro rally lost steam. Gold declined $7.00 a troy ounce, or 0.49%, to $1,408.30.

TECHNICAL OUTLOOK >>> January crude oil posted a key reversal down on Tuesday after testing the 87% retracement level of May's decline crossing at 90.62. The high-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are bullish but overbought hinting that a short-term top might be in or is near. Additional weakness in Wednesday would confirm today's key reversal down thereby increasing the odds that the rally off August's low might have come to an end. If January extends the aforementioned rally, May's high crossing at 93.29 is the next upside target. Closes below the 20-day moving average crossing at 85.26 would confirm that a short-term top has been posted. First resistance is today's high crossing at 90.76 Second resistance is May's high crossing at 93.29. First support is the 10-day moving average crossing at 86.07. Second support is the 20-day moving average crossing at 85.26.

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