The past week has been another bullish week for stocks but the initial bullishness did wear off a bit by the end of the week, as evidenced by the smaller bodied candles/northern dojis. Contrary to popular opinion, dojis are not reversal signals in and of themselves but more an indication that the bullishness has lost a bit of momentum and are often just the markets pausing for breath before continuing higher. That said, they do present a possible warning for the short term.
Bullishness in stocks has translated as it often does to dollar weakness, and although the dollar began the week in quite a strong fashion that developed into weakness by the end of the week. Therefore is the same old story with the trends being up for stocks and mixed for the dollar and commodities.
As covered in the introduction, stocks have continued in bullish fashion but some warnings are present in the short term that a possible loss of momentum is upon us. Not really surprising considering the extent of recent moves higher and the fact that the June S&P 500 is now banging its head against the 1400 level.
The other indexes also look good in spite of similar hesitation patterns forming as the Dax advanced 3.85% for the week. The 2011 high at 7680 will be a longer term upside target now that the Dax appears to have firmly closed above 7000. However, a correction is due and we may see some weakness before that target is reached, if indeed it is in this current uptrend.
Soybeans have continued their bull run, this week advancing by 2.76%. The upside target remains at 1450 for beans and this past week has also seen bean oil and meal following along nicely, with meal being the most bullish of the sector.
Gold ended the week down by 3.25% and continues the long-term downtrend. This past week saw the yellow metal move once again below the often watched 200 day moving average. Copper fared better, advancing by 0.51% for the week and still remains in a long term uptrend with a test of 40000 being the critical level.
The dollar index ended the week lower by 0.51% having earlier made an upside breakout that eventually reversed. The trend for the index is still up as it is for the dollar against a few of the major currencies.
The Aussie dollar fell to a 7 week low against the dollar but then made a recovery, forming a nice hammer pattern on the weekly chart and we also saw a similar pattern of trading for the kiwi. The Canadian dollar continues to be the weakest of the 3 commodity currencies and is still in a long term downtrend whereas the trend for the other 2 is still up.
In spite of a bit of a pause from weakness towards the tail end of the week, the Yen continues to be the whipping boy of the currency markets, having declined for a seventh straight week, this past week declining by a further 1.01%. Resistance has appeared at 8400 but if that can be cleared then our target at 8500 is still on the cards.
Both the Euro and the Pound advanced for the week against the dollar but the trend is still down for both markets.
Interest rate futures
We wrote last week “We may see some decent moves lower should those support levels eventually give way”. We were referring to the medium term support levels that have held the interest rate futures markets up very well of late. This week those support levels were tested and support failed, leading to quite a dramatic sell off, which in the case of the 30 year T Bonds, this mean a weekly decline of 2.76%. There are many h edge funds that are itching to short interest rate futures so if last week’s lows do get taken out we could see further selling pressure. For now though the long term trends are still up.