There has been so much news about our financial system and how it's been affecting both financial and commodity markets. We've had some wild swings in the past week--what a rollercoaster ride! Hundreds of billions of dollars for bailouts, it's incredible. Gold rose 13 percent last week, the biggest weekly jump in nearly nine years, and crude oil is now back above $100 a barrel as investors turned back to commodities as safe-haven plays.

As for the stock market, it's been a schizophrentic week. The stock market has welcomed government measures to shore up the ailing financial system, although we now have a huge price tag to pay. This morning, we woke up to news that the Federal Reserve will convert investment banks Goldman Sachs and Morgan Stanley to traditional bank holding companies. With this latest move, oversight has increased, as the Federal Reserve will now oversee the parent companies of nearly all major U.S. financial institutions.  

While stock index futures are pulling back in early trade as uncertainty remains about how we'll pay for all this, and who might be next to fall, it looks like at the very least, a short-term bottom is in for the market. December S&P 500 index futures contract closed sharply higher on Friday, September 19, rallying in response to the government's move to shore up confidence in money market funds. Friday's move led to a close above the 20-day moving average at 1250, suggesting that a short-term low has been posted.

From a technical standpoint, momentum indicators, Stochastics and the Relative Strength Index (RSI), are turning bullish, signaling that sideways to higher prices are possible near-term. If December extends Friday's rally, August's high at 1315 is the next upside target. If December renews this summer's decline, weekly support at 1136 is the next downside target.

Day traders of the S&P futures should stay bullish with prices above 1227. Under 1227 we need to keep eye on 1212, and then 1200, for support to keep recovery going. I'm expecting a "mild day up" today into the close.

Dollar Slips Back

Meanwhile, I'm getting bearish on the dollar. The U.S. dollar has been slipping amid the financial turmoil and the toll it will take on our economy, and on ideas any interest rate increases by the Fed are a long way off. We've got a big debt to pay, including some $700 billion to scoop up soured mortgage-related assets and some $400 billion to guarantee money-market mutual funds.

The December Dollar Index futures contract closed lower on Friday, as it extended Wednesday's breakout below the 20-day moving average at 78.79. This suggests that a short-term top has been posted. Stochastics and the RSI remain bearish, signaling that sideways to lower prices are possible near-term. Closes above the 10-day moving average at 79.35 are needed to suggest that a short-term low has been posted. I see first resistance at 79.38, with second resistance at 80.90. First support is at 77.31, and second support is at 76.56.  Currently, the dollar is down and trading at a three-week low versus the euro.

Good luck and good trading!

Please feel free to call me at 866-231-7811 or contact me via email at jfriedman@lind-waldock.com if you have questions on this topic or to discuss specific trading strategies for your unique situation in this or other markets.

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