The past week has seen stocks finally correct somewhat, something that has been on the cards for the past few weeks. However, the long term trend is still very much up across the stock indexes and each of the indexes we trade remain above their 50 day moving averages and still a long way above their 200 day MAs.

The dollar saw an end to its recent short term weakness as it ended the week higher against all the majors with the exception of the Japanese Yen. The long-term trends are still up for stocks but mixed for the dollar and commodities.

Stocks

The S&P 500 failed to make new highs this past week and has subsequently fallen back below the 1400 level. This suggests that in the short term a top has been put in at 1419.6 on the June futures contract, although Friday did see buyers return at the lows of the day at 137 3, taking the index back to close at 1390.2.

As has been the case for much of the recent rally, the Nasdaq 100 is still the strongest and is still holding up better than the other indexes and still remains above support. As long as that remains the case there has not been a huge change in sentiment and the other indexes could recover, but if the Nasdaq joins the breakdown then that may accelerate the down moves.

As we wrote last week, on a seasonal basis April is a good month but as ever price and trend is far more important than any seasonal indicator or tendency. Looking further ahead, the old adage often applied to stocks of “Sell in May and go away” is only a few weeks away and given the extent of the recent up moves for stocks, a reasonable correction is not out of the question.

Commodities

Last week we wrote “Gold ended the week higher by 0.42% but having had a brief look ab ove the 200 day moving average on Tuesday, where it ran into the $1700 level, ended back below the 200 day MA. The long-term trend is still down and conditions bearish as long as $1700 resistance holds.” $1700 did hold and the market remains in a long term downtrend and below the 200 day MA having fallen to new lows since the First week in January.

Crude ended the week higher by 0.28% and formed a doji on the weekly chart, which represents total indecision. In the longer term the trend is still up but the short term is without direction. Support from the psychological $100 level is still in place but if that level is taken out there is little in the way of support until the 200 day moving average, which currently sits around the $97 level.

Coffee did break though the $1.90 level that we wrote about last week but was unable to push higher and the trend is still down.

Currencies

The dollar index held on to the previous week’s lows on a closing basis (although the lows were briefly taken out intra-day on Tuesday) and this formed a platform for a decent push higher as the market remains above the February low and also above the 200 day MA. The long term trend is still up but the market is currently in the middle of the range that spans from the lows at 7842 and the local top at 8116 (June contract).

The British Pound fell just short of giving a confirmed change of trend to up and reversed this week to remain in the box range that has been in place for quite some time. The long term trend therefore remains down and the market is currently sitting almost exactly on the 200 day MA, which may provide some support.

The Euro was unable to clear $1.34 resistance and this failure led to a move down back towards $1.30, a level that will likely be tested this week. A break of $1.30 would likely see a test of the February lows and failure there may op en the way for a move further down towards $1.2640. The trend remains down.

Interest rate futures

The morning star reversal patterns that formed in the interest rate futures sector 3 weeks ago have proven to be a strong reversal, as they often are, and the 5 & 10 year T notes as well as the 30 year Bonds have continued to advance higher and the long term uptrend which narrowly stayed in place looks to be getting back on track. We may yet see a continuation higher towards the highs of the year.

However, as we wrote last week, should the market eventually break the low of the morning star pattern, which is now a key support area, there could be some large moves lower as such a move would not only break that pattern but also change the long term trend to down.

Kind Regards

Robert Stewart