U.S. investors are driving stock indices higher ahead of this morning’s housing starts and industrial production reports. Renewed confidence in higher risk assets is also contributing to the strength. Trading could slow down after the morning session as investors flatten out ahead of this afternoon’s FOMC minutes.
The charts indicate that the main trend remains down in the three major indices and that this current rally is being driven by short-covering following the recent sharp sell-off. At this time the March E-mini S&P 500 is trading inside a key retracement zone at 1094.50 to 1107.00.
March Treasury Bonds and Notes are trading a little lower. Short-covering could drive the March Treasury Bonds to 118’04 to 118’15. On the downside, a break under 116’23 will turn the main trend to down and could trigger an acceleration to the downside. Yesterday it was reported that China sold off enough Treasury investments in December to help Japan regain the title as the largest holder of U.S. debt. This could be a sign that China is concerned about the growing U.S. deficit. This could lead to higher interest rates over the long-term.