While many traders and investors breathed a sigh of relief at the strong performance of the equity markets on the 1st day of trading for 2011, there are signs pointing to significant upswings in volatility that should make some initial inroads within the first quarter of this year. While US manufacturing data provided additional catalysts for Monday's optimistic global view of economic recovery there are signs brewing in several key techincal indicators which suggest that gains may be nearing significantly overbought territory ans should seek to undertake a significant correction.

Charts of the March S&P and Dow futures contracts show significant overbought levels on the daily RSI (Relative Strength Index). The unusually strong December gains posted by the major equity indices suggest a coming relief pullback that could touch key technical support levels, possiblly by the middle of this coming March.

Gains in the S&P should find significant resistance at 1288.00, then stage a pullback to an initial  level of 1241.00, with a further break setting a possible test of1218.00. Dow Futures should find resistance at 11745, then stage a pulback to 11280.

For those equity optimists that believe equities will significantly trump bonds this year, the case should be made for the fact that demographics should still offer support to commitment of capital toward mid to higher yielding debt. With many companies still holding strong cash positions, the ability to service the debt should remain strong as well as the perception of safety that goes along with the order of payout should a surprise uptick in corporate defaults stage a surprise appearance on the financial horizon between now and 2012. 

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