There’s not a whole lot going on from a data standpoint this week; the big action should come with the Federal Reserve’s April 29-30 policy meeting and the financial futures markets may chop around until then. For now, the markets will have to absorb corporate earnings, and speculate about interest rates and how high crude oil may be headed.

S&P 500 Index

The stock market posted widespread gains last week, with the S&P 500, Nasdaq and Dow Jones Industrial Average all up more than 4 percent. The June S&P futures contract closed higher on Friday, extending last week’s rally. Momentum indicators, the stochastics and relative strength index (RSI) are bullish, indicating more room to move up.

Resistance comes in at 1400, the reactionary high and 50 percent retracement from the October-March decline. If the market take out that resistance, the next target comes in at 1425. On the flip side, a close under the 20-day moving average at 1354 would suggest downside pressure will resume, and the market could fall back as the bears try to regain control.

For day traders, I see action as neutral to bearish. Look for limited upside after last week’s gains. I’d be looking to sell rallies on a short-term basis. June S&P futures were last trading down around 5 at 1383.

The credit markets are pricing in lower expectations from the Federal Reserve in terms of an interest rate cut, and that will have a bearing on price action in equity markets as well. A few weeks ago, market participants were expecting the Fed to lower its key short-term lending rate (known as the Fed funds rate) by 50 basis points at the April 29-30 policy meeting, but current expectations are for 25 basis points, or none at all. Some saying the worst is over in the credit market (and perhaps for the stocks), but I think it’s still wait and see.

Crude Oil

Crude oil should hurt the economy, as it keeps going higher. The May futures crossed $117 a barrel this morning, a new all-time high. Speculation is at play, and it’s hard to predict where the market is going at these historical highs.

Fibonacci projections put June futures could move up to $118.50, and there is talk of $125. The market has gotten an early lift on news of Nigerian pipeline explosions, and positioning tied to the expiration of May futures contracts. While higher prices seem here to stay, it may be too soon to get to $125 yet. I think crude oil has come a long way in a short time already, and I think this market is overbought and needs a correction. As I’ve said time and time again, watch the U.S. dollar for direction in commodities. If the Fed stops easing interest rates and starts talking tougher on inflation next week, significant corrections could be forthcoming.

While I am not saying the long-term commodity bull run is coming to an end, corrective moves are likely in the short-term. Fund managers could shift some money out of commodities and into equities if they see the economy improving in the second-half of the year. You should be cognizant of that as you trade, especially in the coming weeks. Crude oil could move back down to $100 (a sizeable move) and still be within an overall bullish trend for months and even years to come.

Good luck and good trading!

Jeff Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com. Join Jeff for his monthly webinar, Friedman’s Futures Forecast, by visiting Lind-Waldock’s events page.

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