Volatility has remained high over the past week, which has overall seen continued weakness for stocks and the dollar, as well as several commodities. The exception to that is the metals sector, which has once again seen new all time highs for Gold.
It continues to look as though we have seen a major top in the stock markets and prices continue to head lower. We may yet see a test of the prior week’s lows at 1076 and at this stage that looks quite likely. Further below that we have support at 1026 and 1000 on the September contract. There does appear therefore to still be considerable room to the downside on the S&P 500 and the same can be said for the other major indexes.
From a longer term perspective, all of the indexes that we trade at LS Trader were unable to clear the 2007 highs with the exception of the Nasdaq 100. This means that with the exception of the Nasdaq that on a long term basis the indexes are making lower highs and this is a bearish set up. For this reason the Nasdaq 100 remains the most bullish of the indexes.
The German Dax is probably the weakest of the indexes at present as it is the only index that moved below the lows of the prior week and we’re now looking at the next support target around 5270.
We wrote last week about the VIX and the proximity of current volatility to the second quarter of 2010 at 48.20. This week saw the VIX rise to 45.40, which is still a very high reading and reflects a lot of fear present in the markets.
Crude oil resumed the downtrend and the October contract declined 3.83% for the week and the $75 level will remain the downside target.
Irrespective of the increased margin requirements imposed by the CME, Gold’s rise c ontinues unabated and Silver has also broken out of the recent range once again, having also been subject to earlier margin increases and the trend for metals overall remains bullish. Gold registered a new all time high at 1881.4 on the December contract on Friday although the market did come considerably off that by Friday’s close. It’s worth noting that on the December contract that Gold opened the month at $1622 and now just 3 weeks later we stand at 1852.2!
The dollar index drifted lower once again with the September contract at one stage trading at its lowest level in some 16 weeks and only marginally above the May lows at 7332, which continues to be the next downside target.
The dollar fell to its lowest level against the Japanese yen since the second world war and the markets will certainly be on the lookout for a move from the Bank of Japan this week to weaken the Yen.
Interest rate futures
Interest rate futures continued higher with yields falling to 60 year lows although there are signs on the 10 year T Notes that the market is wavering at these levels as there have been a couple of long higher shadows on the daily bars, which indicate the higher levels being rejected, as well as a doji pattern on Friday’s candle, which although not a reversal pattern in and of itself does reflect indecision and is often a precursor to a reversal. The trend remains up across the sector.