Big Fibonacci Level Tagged...What's Next?

After the abbreviated Thanksgiving week, both bulls and bears were ready to make a statement.  After all, price levels were at a median number (middle of the range), and one side was likely to take the lead, while the other had probably fallen asleep after a big turkey dinner.  Just following the holiday, a big pop in volatility due to Dubai news scared bulls into a frenzy, yet the situation moderated and it seemed all was good in the world.  For the week, markets finished off at some rather impressive levels (weekly highs for the year).      

Big Fibonacci Level Tagged...What's Next?  

It's not bad enough that the 1095-1120 level was a point of major breakdown in Oct 2008, the higher number also represents a significant retracement.  In fact, the high in the SPX from 2007 to the recent low in March 2009 has a 50% retracement number of 1120.  Friday's high was pennies below there.  Is it important?  Surely technicians take these numbers to heart and pay close attention.  In technical parlance, there is heavy supply around the 1120 level and since there are big sellers up there it could be tough to achieve higher prices.  That could be masking a much stronger bull presence, and if that level does collapse it becomes major support.  With comfort levels so high it's probably going to be a trudge up, but a sideways action would not surprise me a bit.    

Jobs Number Good...Fed's Next Move?  Watch Bonds  

All the panic was set aside after a surprisingly strong jobs report.  Well, it was better than expected but make no mistake:  the economy is far from heeled with 10% stated unemployment.  It's a step in the right direction.  Many were caught off guard, especially since the White House seemed to telegraph a bad report beforehand.  So, we've been talking about the next Fed move.  Certainly Bernanke and Co. are getting quite comfortable at the printing press and keeping rates down.  But is this the ONE signal the Fed needed to consider rate hikes?  Certainly the economy is still weak and may not print a good GDP this quarter.  What then?  Are they still on hold?  Fed funds futures currently show only a small chance of a rate hike in 2010 even after the good jobs number.  The dollar showed strength (more below) yet bonds were clobbered.  Moreso, the curve steepened...which is really where we have to focus.  It's the steepening curve that will tell us the economy is on the mend.  Up to now the curve was flattening on the long end...no more.  So, maybe?  

Dollar Bears Get Squeezed, Yet Volatility Implodes  

It had to happen some day, right?  All the talk about the crowded bearish dollar trade, and we all know everyone can't get rich at the same time.  What does this mean for markets and even more for our economy?  A strong dollar sends a message to the world that our economy is not breaking down any longer, it makes commodities more expensive but also attracts investors to the currency.  That's a double-edged sword of course...exports become pricier for our trading partners.  What surprised me is the big drop in volatility even with the big bang in the buck.  Is there no worry about the unwinding of the carry trade and the effects on risk?  Surely there will be a rotation into other assets but the risky stuff won't be as attractive, especially if there is a whiff of inflation (bond yields rising sharply are the first sign of this).

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