On Thursday the Fast Money pros took a hard look at what’s next for stocks with so many key technicals coming into play.
First and foremost the traders are watching the 50-day on the S&P, now just above 1,328. Sellers crowded around that level for a third day with some investors considering the level strong resistance that prevents any rebound in the benchmark.
Fast Money trader Tim Seymour, however, sees it a little differently.
He's focussed on the market's ability to pare losses and post gains late in Thursday's session. “(By) the close the S&P neared the 50-day, that's bullish,” he says. "If we can hold the 50 we can test the highs," he adds. In other words, into month’s end Seymour thinks there’s room for the market to rally.
Also, technical traders are watching the currency markets. The market's ability to sustain an advance seems to ebb and flow with developments in Europe's debt woes.
"Currency strength right now is the major mover of equity and commodity markets," says Michael Yoshikami, president and chief investment strategist at YCMNet Advisors in a Reuters interview.
"No market sector can move away from that," he explains.
Looking at technicals, the 20-day correlation between the S&P 500 and the dollar index was at -0.8. It hit -0.95 earlier this month, with a perfect inverse correlation scoring -1.
In other words, when the dollar gets strong, stocks go lower and vice versa.
Fast trader Pete Najarian is watching the technicals elsewhere. He's got an eye on Shanghai.
“It’s edging lower and lower every day," Najarian warns. In fact, on Thursday May 25th the Shanghai Composite fell 10% from this year's highs set on April 18th. Typically a 10% slide from the highs is considered a correction.
"When you see some of the world markets that have supported the rally to the upside, we're seeing something different," says Najarian.
The conventional wisdom is that the S&P can't march higher if the Shanghai breaks lower.
Tim Seymour concedes that Asia has been a leading indicator and because of the action in the Shanghai, "you have to be concerend."
TECH BACK ON TOP
Turning attention to technology , the sector helped drive the S&P into positive territory on Thursday after strong results from NetApp buoyed investor appetite for risk; the company said an increased interest in cloud computing drove demand for its data storage products.