In last week’s update we wrote that the all time highs posted on May 22nd may prove to be the market top for the time being and this week’s price action is so far confirming that view. The indices look set for further weakness in what may eventually end up developing into a sharp decline. If stocks do correct as we expect, the dollar rally will likely resume and commodities fall. Opportunities abound over the coming weeks.
The S&P 500 has continued with weakness and looks set to test and break short term support, followed by a likely decline further to the 50 day moving average, currently around 1600. As we wrote last week, price action has as yet not terminated the uptrend, but we may look back in time and see that the May 22 high was the top. Time will tell, but for now the trend is still up.
From the indices that we trade at LS Trader, the Dax and the Nasdaq 100 have held up the best. The Nasdaq has drifted sideways to lower with indecisive price action. A test of support looks likely this week, and the same can be said of the Dax.
Last week we wrote that the Nikkei looked set to continue its decline lower to 13,695. The Japanese index actually declined lower than that level and looks set to continue lower. Price action continues to suggest that a major top was seen at 16,050 on May 22. The long-term trend remains is still up but the recent decline has put a major dent in that.
Gold edged higher this week but the rally has not been too convincing and has been unconfirmed by silver, which ended the week down. Whether we see new lows again during this coming move remains to be seen as price action in the short term is very indecisive. The trends are still clearly down for both metals so the odds slightly favour lower prices.
Last week we wrote on Lumber that the highs of this year at 409 may be a multi year top and that we could expect lower prices longer term, but a bounce may be seen near term due to the extent of the recent decline. Lumber did continue sharply lower, but then an equally sharp bounce followed. How far this bounce continues for remains to be seen but the trend is still clearly down.
The grains markets remain mixed, but soybeans and soybean meal continue to lead the way higher. The trend is still mostly down for this sector but some strength has been seen in a few of the grains markets in recent weeks. Longer term, grains prices still look likely to be headed lower.
The energy sector has been particularly weak with no sign of a change of trend to up anywhere in the near term. Therefore we can expect to see lower prices, especially if support levels are taken out.
The dollar has had a mixed week, which in some markets has seen a continued correction, but other markets have seen the dollar continue to rally. Certainly at present the long-term trends very much favour the dollar across the board and a larger, extended rally will likely be seen over the coming weeks and months.
There is considerable weakness in the commodity currencies, in particular the Australian dollar and the New Zealand dollar. Weakness in these markets will likely continue if commodity markets continue to decline as we expect.
Interest rate futures
Interest rate futures were lower across the board once more and key support was tested and taken out as expected. The trend is now down for most markets in this sector but the extent of recent selling led to a decent bounce at the end of the week. As has often been the case recently, the 30-year Bond led the decline and has been the weakest market in the sector. The short-term 3-month markets were also lower.