October may yet prove to be the undoing of stocks as a double top has formed on the S&P 500, which has led to short term support being broken, culminating in a weekly loss for the index of 2.34%. Whether this ends up being the top for the year remains to be seen but we may see further downside this month. As we have written previously, October has had a tendency to be a jinx month for October with multiple crashes being seen over the past 80 or so years.
Elsewhere has seen minimal activity in the currency markets, which for the most part are consolidating at present. Commodities remain mixed but the trends are still mostly up for stocks and down for the dollar.
As mentioned above, the S&P 500 has confirmed a double top pattern by a breach of the intervening low between the two recent highs. Taking standard pattern measurements, this would project to a decline to around 1380 on the December contract, just below the next level of support, so that appears to be a realistic target for the next few weeks.
The Nasdaq 100 was weaker still, declining by 3.36% for the week and also taking out support. Having taken out the 50 day moving average, we may now see a continuation lower towards the 200 day MA.
The Dax continues to find support in the region of the 7200 area, which appears to be the key for this market. If 7200 does fail, a drop to 6900 may follow swiftly.
The VIX remains near its lowest level since 2007, indicating that complacency is still running high in the markets. Going on the basis that the crowd is usually wrong and that the VIX is a contra indicator, we may see a rise in the VIX and a decline in stocks in the not too distant future. Last week’s decline for stocks has so far had little impact on the VIX.
December Gold looks as though the $1800 level resistance has proven too much, at least for the near term and short-term support looks likely to be broken in the near term, suggesting an end to the uptrend for now. The long-term trend however is still very much up.
Crude had a strong move this past week, most of which came on Tuesday. The trend is still down. The trend for the other market in the sector is up, with Natural gas having reached a new 12 months high. Is this the start of a new bull market move for Natural gas? No leaded gas and heating oil both made new highs for the current move.
The dollar index advanced by 0.39% for the week but it has been an uneventful week for the currency markets, most of which are in sideways consolidations. The trend remains down for the dollar against virtually all of the majors but how long that continues to be the case for remains to be seen, especially if we have seen a top in stocks.
Interest rate futures
The 5 year T-notes continued to pull back from the recent highs but the trend is still up. Faring better in the short term are the 10 year T-notes and the 30 year T-bond. The trend across the sector is still very much up, even though a change of trend to down is in range for some of the sector, due to a large extent to the duration of the consolidation seen over the past few months, where even though the markets have tested the highs, they have for the most part moved sideways. Upside potential continues to be limited for the shorter term markets, but the longer term markets may yet have room to move.