In recent updates we have been focusing on the May 22nd highs for stocks and whether stocks would reach new highs again following their recent correction. Price action this week suggests that new all time highs are just ahead for stocks.
Overall this past week has seen many markets make counter-trend moved, particularly the dollar. These moves have however been of insufficient strength and duration to change the longer-term trends, which still remain up for stocks and the dollar, down for commodities and bonds.
We wrote in last week’s update that seasonality was not a reliable enough indicator to use and that the old adage of sell in May and go away was inferior to following price trends. This past week has seen stocks resume longer term trend and has seen the Nasdaq 100 exceed its multi-year highs posted on the 22nd May, with the S&P 500 just a few points way from doing the same. The seasonal weakness that we are now in does not preclude higher prices and although it’s probably unlikely, stocks could continue to rally for the remainder of the summer.
The highs the Nasdaq 100 posted this week are the highest since January 2001 so the market currently sits at 12 ½ year highs. This current rally is now approaching the 50% retracement level of the bear market collapse from March 2000 to October 2002. The 50% retracement level sits at 3189 basis our continuous contract data, and this level remains a viable target over the coming weeks. Whether that level is reached will be largely determined by other markets, in particular the S&P 500.
Last week we wrote that we may see the S&P 500 test and clear 1650 and if it did that would bring another go at all time highs right back into focus. 1650 was cleared and the market has since continued higher to within a few points of all time highs. Friday saw a doji printed on the daily chart which indicates indecision at current levels, but in an of itself a doji is not a reversal pattern and does not preclude a continuation higher. It may merely be just a pause before the next move higher. As before, the trend remains up with near term support at 1550 basis the September contract and critical support at 1525.
Silver bounced sufficiently to bring our long running short trade to an end. This was an extremely profitable trade that lasted a full 97 days before exiting. The longer-term trend is still down and we may yet see a resumption of the downtrend. It will take a large move higher to change the trend for silver to up.
Gold however was weaker and was unable to clear resistance at 1300, although that may still happen due to the market’s proximity to that level, which represents critical resistance for the downtrend in the neat term. As we wrote last week, the downtrend is clearly mature but the potential for lower prices remains, possibly as low as 1100 for gold, more precisely 1083 if resistance holds.
The energy sector saw some strong moves, with crude oil shooting higher by 2.64%, bringing most of the energy sector along for the ride. The longer-term trends are mixed in the sector but there is undoubtedly strength in the short term.
The dollar weakened this past week in a move that we view as corrective. The dollar index ended the week lower by 1.80% but this move is insufficient to end the trend and the trend therefore remains up. Further weakness will be required for that to change. The dollar index is largely made up of the Euro, so any moves in the Euro will be inverted by the index. This week saw the Euro spike higher from a key support area, likely forcing many Euro bears to cover, and this move was a major contributing factor to dollar index weakness.
Even the commodity based currencies, which have really taken a hit over recent weeks gained, with the exception of the Aussie, which following a bounce higher alongside other currencies during the middle of the week, ended the week at new lows for the current move.
Interest rate futures
Interest rate futures, along with many other markets made corrective moves over the past week. The longer-term downtrend remains intact and we may yet see lower prices for this sector within the current leg. As before, any rallies seen will likely prove corrective and the potential for lower prices, both in the near and longer term remain.