The past week saw new 1 year lows for the stock market, followed by a sharp rally for most of the week, which only ran out of steam on Friday. As ever the inverse relationship between stocks and the dollar is still in play, but not as much as normal. Such a move in stocks would normally correlate with a much larger down-move for the dollar, but the dollar ended the week down but not significantly so.
The long-term trend remains down for stocks indexes and commodities overall but it remains up for the dollar almost across the board.
The S&P 500 initially fell to its lowest level in a year before making a strong recovery and ending the week ahead by 2.57%. The long-term trend however remains down and the market failed to clear the downward sloping trendline on Friday. Of interest is the spinning top pattern on t he daily chart which represents indecision and a possible turning point, with the high of the day running into resistance at the trendline. Although you’d never place trades based on this information, on a historical basis Monday and Tuesday of next week are normally bearish so it will be interesting to see the markets reaction and whether the trendline holds with resistance around the 1175 level on the December contract.
The VIX almost made it as high as our 4800 target but then moved sharply lower as stocks rallied, ending the week lower by some 15.47%. Moves such as this have been typical on the VIX for the past couple of months, so even volatility is volatile! As we wrote before, if 4800 is eventually taken out taken out we could see levels of fear in the markets not seen since the 2008 crash and such a move would correlate to a sharply lower stock market.
The grains sect or continues to be very weak, with some grains markets falling to their lowest levels in a year. The entire grains sector is now in a long term downtrend with the exception of Rough rice. Weakness in this grains sector is being led by soybeans, which has taken out and closed below long- term support.
The metals sector remains weak overall even though we have seen some upmoves over the past week. Only gold remains in a long term uptrend, but even gold is effectively moving sideways before the next directional move, which by looking at the current chart formation is likely to be down.
We wrote last week that Copper may decline as far as 28400 if support at 30000 could be taken out. The 30000 level was tested and support found, leading to a rare up week for the metal, which had been in decline for the previous 5 weeks.
The US dollar was lower, albeit not by a great deal, a lmost across the board. Of interest though is that the rally for other currencies for most of the week ran out of steam on Friday, with several markets printing reversal candles, such as shooting stars on the Aussie and Euro and hammers on the Dollar/Canadian and dollar index. If these patterns are good for a reversal the week ahead promises to be interesting.
Interest rate futures
We had written a few weeks back that 10 year yields would not likely move lower than 1.70 and that was almost exactly the bottom. Since then yields have risen in the interest rate futures sector which has sent prices lower. The long-term trend remains up with the exception of the 3 month Eurodollar and as we have suggested before, there is a possibility of a spike higher in interest rate futures yields, which may lead to an eventual sharp decline in this sector.