We have been writing of late about the inverse correlation between stocks and the dollar and this past week has seen more in the way of risk-on, which has favoured stocks and led to dollar weakness. This move has started to shift the long-term trend to up for stocks, but it also still remains up for the dollar. It is unlikely that both of the long term trends will continue for long in the same direction so something is going to shift before long.
We have been writing of late about various seasonal indicators and tendencies for the stock markets in the year ahead based on what happens to stocks at different times in January and over the month as a whole. So far, January has been highly bullish so if things continue this way until the end of the month and hold true to form, stocks could be on for an up year.
Last we ek we wrote “Short-term direction is still unclear but a break above 1300 would open the way for a rise to the 2011 highs at 1355.” We did get the breakout above 1300 and not only tht but the market went on to close above that level, which included a weekly close also for further bullish confirmation and there is little in the way chart wise to suggest that the market falls short of a test of the 2011 highs around 1355.
Strength in stocks also led to a breakout for the Nasdaq 100, which this past week hit a new 10 year high having reached its highest level since 2001. Whether we get further strength this week remains to be seen and we may also see the Dax make an upside breakout.
Crude ended lower for the second straight week but the trend is still up. Crude has closed once again below the $100 level but the trend is still up. As before we may see a continuation lower towards the 200 day moving average, which may act as support.
Gold managed to clear resistance at $1650 but has not really moved ahead in a convincing manner. The trend remains down but the market has moved back above the 200 day moving average so further strength may be seen and may get to around $1680 where there is further resistance. Silver had a larger move to the upside than gold, but the trend also remains down for silver.
Once again the big moves of the week came in the Orange Juice market, which ended the week ahead by 14.11%. The long term trend is clearly up and the market bullish, as strength this week erased losses seen at the end of the prior week and took Orange juice back to 34 year highs.
The risk-on move being seen so far at the start of this year is having a negative short-term impact on the dollar. Although the long-term trend remains unaffected short term the dollar is weak and may be heading for a test of various support/resistance levels in the week ahead. The most important of these will be on the dollar index, which is still holding above support at 8000. There is also further support around 7950 and the dollar will remain in an uptrend short term as long as those levels hold.
Both the Euro and the Pound had bullish weeks, particularly the Euro, which broke out of a medium term bear channel, which has been in place since October. When this happens we often see a move back to test the top of the channel, which is currently just below the $1.28 level. The trend for now is still down.
Interest rate futures
The trend continues to be up for the interest rate futures sector but the risk-on strategy seen in other markets has resulted in lower interest rate futures this week. Longer term markets are heading for short term support but consider able further weakness will be required for a long term trend change to down. The 5 year notes still remain relatively close to all time highs.