Geopolitical tensions between Ukraine and Russia has accelerated the rally in Nymex oil prices that started in the week of January 18.» Read More
One month into the New Year U.S. stocks look the worse for wear. With the S&P 500 down 5.7 percent year to date, investors are beginning to wonder – should we expect a rebound or is a reversal in trend at hand?
The S&P 500 fell below the much-watched 100-day moving average at 1770 on Monday as weak manufacturing data sparked concerns about slowing momentum in the U.S. economy. The data heightened concerns about Friday's payrolls report, which could play a key role in determining when the Federal Reserve next tapers its asset-purchase program.
U.S. equity markets had a stellar 2013, posting their best performances in years, and while they've gotten off to a lackluster start in New Year not all hope should be lost.
The S&P 500 rose 29.6 percent in 2013, while the Dow Jones Industrial Average gained 26.5 percent, marking their strongest performances since 1997 and 1995, respectively. However, their 2014 performances have been lackluster thus far; as the first month of the New Year draws to a close the S&P 500 is down 3.5 percent, while the DOW is down nearly 4.4 percent. Still, investors should not lose hope.
(Read more: 'Freaking out' about emerging markets may be wrong)
While the DOW's retreat is sudden and large, it is not unexpected. A 10 percent correction in the DOW is consistent with a continuation of the long-term uptrend, and a test of technical support near 15,000 would present a buying opportunity.
Starting in the 1970's the U.S. government prohibited the export of its oil. However, U.S. shale oil reserves have since changed the structure of the oil market and now there is talk that the export ban may be lifted.
The export of U.S. shale oil would change the pricing structure of oil. Investors' expectations for how price activity would develop if the export ban is lifted are already reflected in the weekly NYMEX oil chart.
(Read more: Energy industry voices decry move to export US oil)
Investors beware: popular market myths should be taken with a grain of salt. One of the most popular myths of 2013 was the flight of capital from Asia and the emerging markets. The facts tell a different story and provide an investment edge.
Here are three market returns from the start of 2013 to mid-January 2014: 32 percent, 29.9 percent and 28.6 percent. These are good returns that come from a surprising mix of markets. Can you guess what they are?
The 32 percent return comes from the S&P 500, the Dow delivered 29.9 percent and the S&P Asia 50 Exchange Traded Fund delivered 28.6 percent. The ETF tracks the top 50 stocks from Hong Kong, Taiwan, Korea and Singapore and provides an effective way to trade the performance of these markets.
(Read more: US recovery unlikely this year: Stiglitz)
Stocks on Wall Street had an impressive run in 2013 amid a backdrop of ample central bank liquidity, with the NASDAQ rising 38.3 percent for its best year since 2009. However, with the Federal Reserve set to reduce its asset purchases this month investors can't help but question the likelihood of a repeat performance in 2014. Down 1.5 percent in the first few days of the New Year, charts suggest that the NASDAQ may face a pullback, but ultimately the environment remains bullish.
(Read more: Nasdaq pays up for botching Facebook's IPO)
Charts show that the NASDAQ index has a steady and strong uptrend with an up-sloping trading channel. Best seen on a monthly chart, there are three features: the trading channel, potential upside targets and the position of long-term uptrend line A.
The trading channel: Trend lines A and B are the lower and upper edges of the trading channel, respectively. The NASDAQ has moved above the upper edge of the trading channel, thus there is an increased probability of a retreat.
The euro rose to a six-week high against the U.S. dollar on Monday as expectations that the European Central Bank will undertake further stimulus measures continued to fade. Now within sight of a two-year high set in October, charts indicate that a sustainable uptrend is at hand.
The euro/dollar's strong breakout above the middle point of a broad range-trading band in September has continued. Best viewed on a weekly chart display, we can see that the pair's rebound rally since retreating to $1.34 support on November 9 is strong and sustainable, with an upside target near $1.40.
(Read more: Resilient euro just won't be held back)
The trading band's lower support is located near $1.28. While this is not an exact level it has served as a support region and was tested in November 2012, as well as March, May and July of 2013.
Save for a few hiccups, the Nikkei's year-to-date performance has been stellar. Boosted by Abenomics – a series of policy measures aimed at reenergizing the Japanese economy – the Nikkei has risen over 50 percent year to date, ranking it among the world's best performing indexes in 2013.
With the year drawing to a close the question remains: will the index carry this momentum into the New Year? If chart patterns are anything to go by, the answer appears to be yes.
(Read more: Nikkei surges to six-year closing high)
Chart patterns are powerful trading tools because they point the way to high probability outcomes. Many chart patterns also allow for the calculation of price targets, although not the time frame for the achievement such targets. Thus, chart patterns provide a probability framework that allows traders and investors to take positions in anticipation of price movement.
The weekly Nikkei chart shows a well-developed upward sloping triangle. The triangle pattern has three essential elements. The first two are the resistance level near 14,800 and the up-sloping trend line that intersects that resistance level.
Tapering remains a key topic of debate among investors as year-end approaches and Janet Yellen prepares to take over as Federal Reserve chairman when Ben Bernanke's term expires at the end of January.
While opinions over when the Fed will taper differ, charts suggest that any near-term taper or no-taper decision will do little to fundamentally change the trend in the U.S. dollar index.
(Read more: The dollar bulls are back with a bang)
The U.S. dollar Index chart is defined by two features. The first is a combination of three support and resistance levels, which first act as support before reversing their polarity to act as resistance.
The second is the long-term uptrend line; this was broken on the downside in October but the recent rally has given new life to this trend line acting as a support feature.
The dollar-yen breached the 100 level last week for the first time in two months but the pair has since struggled to hold onto its gains.
After languishing below the 100 level in the wake of the Fed's surprise decision not to taper its $85-billion-a-month asset-purchase program in September, the dollar-yen has finally broken above that key level.
(Read more: Are the stars re-aligning for dollar-yen?)
However, concerns about whether or not Abenomics will be effective enough to breathe life into the Japanese economy coupled with uncertainty over when the Fed will taper its asset-purchase program with Janet Yellen set to take over as Chair early next year have seen the pair stall above the 100 level.
Looking at the dollar-yen chart, the pair is dominated by a long-term and slow-moving head and shoulder pattern.
The Indian rupee was among emerging Asia's hardest-hit currencies amid the rout that hit markets earlier this year as investors braced for a tapering of the Federal Reserve's $85-billion-a-month asset-purchase program. The rupee has regained ground since touching an all-time low against the U.S. dollar in August, and despite a brief break, charts indicate that it's likely to continue down this path.
(Read more: Best performing currency in September? India's rupee)
In August, we looked at the dollar-rupee's rapid rise. The broad behavior of the chart patterns provided guidelines for the market's development, which were validated by subsequent developments. A new chart pattern has since developed, which provides guidance to the developments in the rupee.
Prior to the new parabolic trend pattern there were two dominant chart patterns on the weekly chart, not shown here.