In last week’s update we wrote that the 1700 level on the S&P 500 was the next objective. This in fact is probably the psychological level that will determine whether the rally has more legs or whether a correction is about to be seen. The S&P 500 did post new all time highs once again this week but fell just shy of the 1700 level with a new high at 1695.5 basis the September contract.
The long term trends remain unchanged and as they have been for quite some time, and are still therefore up for stocks and the dollar, and down for commodities and bonds.
As we covered above, the S&P 500 posted a new all time high on the 23rd July at 1695.5 basis the September contract. Perhaps what will be key over the coming sessions is whether 1700 can be cleared. The longer that the market remains below 1700 the more likely that will be a ceiling on the market and will lead to a correction, which is perhaps long overdue.
Stocks in reality remain the last asset class standing and once they fall, all sectors will be in a downtrend, since the longer-term trend is already down for commodities, bonds and major currencies.
Gold managed to break through and close above 1300, which we covered in last week’s update and was effectively the line in the sand for short-term price action. The break above 1300 did lead to acceleration higher, likely fuelled by short covering, before more sideways price action. Sideways price action is typical of corrective and counter-trend moves and it is clear that in spite of short-term strength, the longer-term trend for gold, and silver, is still very much down.
The energy sector’s recent rally has fizzled out this week. Of interest certainly as far as US crude is concerned is that COT (Commitment of Traders) data shows that funds reached a new record net long position. Whilst this can be perceived as bullish, generally this suggests that funds have run out of buying power and unless small traders add to the move, a correction is often what follows.
Other markets in the sector have also pulled back, having been unable to rally sufficiently to confirm a change of trend to up. The trend is therefore down for markets such as heating oil and no leaded gasoline and further weakness may follow.
The best trending sector is currently the grains sector, which with the exception of two of the soybean markets remains entrenched in a long-term downtrend. We’ve been writing for most of this year that the technical picture suggested sharply lower prices for grains which should ultimately more than erase last year’s rally and lead to a decline below the 2012 lows, something that is very much still on target.
Corrective price action has continued in the currency markets where dollar weakness has continued. As of yet the corrections have not been sufficient to generate a change of trend and the long-term trends therefore continue to favour the dollar.
Several major currencies are at an interesting juncture this week with GBP/USD surpassing by a few ticks the 61.8% retracement of the decline from $1.5743, which makes the current price levels a possible turning point, leading to a resumption of the longer term downtrend. The Euro has been even stronger in its recent rally, which this week stalled at $1.33. Critical resistance remains in place at $1.3423.
Interest rate futures
The long-term trend remains down for the interest rate futures sector and the recent rise still has corrective characteristics. Therefore the odds favour lower prices again in the not too distant future, so we could see new lows for the year soon.
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