In last week’s update we wrote that the major indices were between all time highs and near-term support and that one of those levels was likely to give way. That turned out to be correct as the S&P 500 broke through near term support and moved lower. The longer-term trend is still up for stocks but there is definite weakness in the near term. Whether this continued sufficiently to give a change of trend to down over the coming weeks remains to be seen. August is, as we have mentioned many times before, often a treacherous month for stocks.
The S&P 500 was unable to push to new highs and sold-off through decent short-term support, bringing the trend to an end for the time being. The longer-term trend is still very much up but weakness is evident over the past 2 weeks. This was the second consecutive down week for the S&P 500, this week closing lower by 2.08%, which has led to the index closing right on the oft-watched 50-day simple moving average. It is now possible that we will see a further slide over the next 2 weeks towards the June lows and major support at 1553 basis the September contract.
The Nikkei 225, still the weakest of the indices we trade at LS Trader, managed a small advance for the week and the trend is still up. However, the Nikkei will, as we wrote last week, almost certainly be the first of the indices we trade to break lower and give a change of trend to down.
The longer-term bear market in the grains markets is still in effect (exceptions being soybean meal and soybeans) in spite of large up-side moves this week. With the exception of wheat, which remains firmly entrenched in a downtrend, the remaining grains markets all moved higher for the week, some making sharp moves higher. With the strongest 2 markets in the sector being soybean meal and soybeans, these 2 will most likely be the first to breakout to the upside should short-term strength continue. For now, strength seen in other markets in the sector is viewed as corrective.
The energy sector has continued with recent strength, led once more by the strongest markets in the sector, Brent and Light crude. The other markets in the sector still remain in long-term downtrends but both heating oil and no leaded gasoline could confirm change of trend as early as this week should strength continue.
Cotton has another explosive week higher, easily taking out the highs of the year, as we indicated may happen in last week’s update.
As we wrote last week, the long-term trend has been up for the dollar index and for the dollar for the majority of the year to date, and it still is. However, recent dollar weakness has pushed several markets, including the index to the cusp of a change of trend. The dollar index though still remains above the August lows of 80.89 basis September, and more importantly the June low at 80.61. As long as these levels hold, the trend remains up for the dollar.
As before, critical resistance at $1.3423 basis the September Euro contract continues to hold. This level, as with the levels mentioned above for the dollar index, is key to near term price direction. The Euro and the dollar index are almost a perfect inversion due to the heavy weighting of the Euro in the index, so with both markets near critical support and resistance levels respectively, we should get a resolution soon for the dollar which will filter through to other major currencies. If the weakness that has been seen this week in stocks continues, it is likely that dollar strength will resume.
Interest rate futures
In last week’s update, we wrote that in spite of recent short-term strength, the odds slightly favoured lower prices and a resumption of the downtrend as that was still the direction of the long-term trend. The entire sector broke lower, led by the long-bond, which fell to new lows for the year and also the lowest level since late 2011. This sector still has plenty of potential to move lower over the coming months, with yields looking set to rise longer-term, prices, which are the inversion of yields, should continue lower.