S&P 500 Closes-In on Highest Print Since Lehman Collapse; EUR/USD Trades Comfortably above 1.34

Stock futures in the US are pointed toward a higher open with the S&P 500 indicating that we will see prices rise to their highest levels in nearly 4 years (when the main story in markets was the bankruptcy at Lehman Brothers).  Part of the reason for the rise is the market consensus for today’s consumer confidence figures, which are expected to come in strongly.

A positive close today will be the fourth consecutive session showing gains in US markets, following yesterdays rally after the better than expected housing numbers in the region.  Macro data has been generally supportive of the price activity in equity markets since the beginning of the year but another factor is that we are not seeing any new negative developments relative to the debt situation in Europe.

Today’s figures will be the Consumer Confidence report from the Conference Board and this is expected to have risen to 63 for the month of February (after a rise to 61.1 last month).  This will be released along with Durable Goods Orders, but expectations here are that we will see declines for the month.  Part of the reason for the negative expectations here are coming from slowing demand in airplanes and falling home prices.

The S&P 500 has seen a rally of 4.2 percent so far this month, and a positive close here will be the third consecutive month in positive territory as corporate earnings and macro releases have been supportive of sentiment.  The S&P is currently trading at roughly 14 times earnings, which is still slightly below the 50-year average (approximately 16.5 times earnings).

Also seen supportive of stock prices is the effect of commodity producers, which have rallied on the higher price levels seen in oil and metals.  Some of the biggest gainers have been Newmont Mining (the second largest gold producer in the world) and Freeport-McMoRan (the largest copper producer in the world).  Copper prices have rallied for the past three days on speculation that policy accommodation in China will spur manufacturing demand.  Traders in other markets should remain watchful of the rally in commodities, as this has specific correlations in both equities and currencies.

Technical Analysis:

The EUR/USD came within 20 points of testing critical psychological resistance at 1.35, before dropping to 1.3360 in a corrective move.  Prices are once again trading close to the highs but a new break is likely to have trouble overcoming 1.35 on the first test.  Aggressive traders can take short positions into this area but stops need to be kept very tight here as a break will accelerate gains.  A downside break of 1.3360 will turn the bias to consolidative and likely bring some stalling in price action.

The S&P 500 is grinding through some very important long term highs but follow through has been limited and this brings some risk of false breaks going forward.  Risk to reward ratios clearly favor short positions at these prices but we have seen little evidence that a top is actually in place here and we will wait for clearer signals before getting short.  A break of support at 1350 will remove the bullish bias and target a further retracement back to 1330 first.