The Dow’s key level and the dollar: Here's what could drive markets on Wednesday

As stocks notched narrow losses in the first session after a three-day weekend, here's what Evercore ISI head of technical analysis Rich Ross is looking for on Wednesday.

Interest Rates

Even as equities have enjoyed a great five months, and as the Federal Reserve hikes its interest rate target, longer-term bond yields have slipped this year. Some have gone so far as to call this a signal that the market rally is on shaky footing. But Ross sees a rate rebound around the corner.

The 10-year yield is "sitting on key support at the 200-day moving average around 2.2" percent, Ross said Tuesday on CNBC's "Trading Nation." "My call is that we hold, and we get a rally back up to 2.31, 2.40" percent.

This will "keep the reflationary narrative alive," Ross added, referring to market sentiment suggesting that inflation is set to tick higher.

Dow Breakout

After strong performance in the prior week, the Dow Jones industrial average is in "an outstanding technical position," Ross said.

However, the index has "yet to push out to a daily closing high above 21,000," he added on Tuesday afternoon. "I'm looking for a textbook close above that 21,000 level to set the stage for another 550 points of upside in the Dow."

At the close, Ross got his wish: The Dow finished at 21,029.47.

The Greenback

After surging following the election of Donald Trump, the U.S. dollar has been another surprise loser this year. Unsurprisingly given his call on interest rates, Ross also sees this trade turning around.

The dollar index, which compares the value of the dollar to a basket of currencies made up predominantly by the euro, has "pulled back to a key area of support at the 100-day moving average," Ross said. "In addition, in each of the last two years, the dollar index has bottomed in May and gone on to have a nice rally from there."

"I think history repeats itself; we want to be a buyer of the dollar index in May," Ross said.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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