Last week we wrote: “Unless something dramatic happens over the next 3 trading days, the Santa Rally will have failed to materialize.” Well, something dramatic did happen with events surrounding the fiscal cliff resolution and bullish moves were seen in stocks, which erased the recent losses and saw the March S&P 500 slightly exceed the prior highs seen in December. The trends are therefore still up for stocks, mixed for the dollar and commodities and still up for bonds.
The March S&P 500 made a large bullish move for the 4 day trading week, commencing with a rally on New Year’s Eve, gapping higher on Wednesday and closing the week ahead by 5.33%, keeping the longer term uptrend intact. Gaps, known as windows in Japanese trading literature, often provide good levels of support, with the lower end of the gap often providing the strongest measure of support. On that basis, March S&P 500 should find support around 1425 or higher should it be unable to hold new highs.
The Nasdaq 100, which has been the weakest of the stock indices we trade at LS Trader, and still the only index of the 4 still in a long term downtrend, managed a 4.91% gain on the March contract for the week. Longer term support at 2515 still remains intact and that may not now be tested until later in 2013.
The Nikkei 225, which is making a parabolic move on the basis of the weekly charts, advanced 3.86% for the week and completed an eight consecutive week of gains. The target of 10800 that we wrote about last week was exceeded during the week, but the market came off that a bit by Friday’s close. As with the S&P 500, the Nikkei may also find support from the gap around 10580 on the March contract.
Last week we wrote that we expected considerable weakness in the grains sector, sufficient for the bull market seen in 2012 to be completely retraced as part of a new grains bear market. This week saw continued grains weakness and the trend is now down across the sector. We continue to look for lower prices longer term on the basis of our proprietary indicators. We expect this sector, which was very profitable from a spread betting perspective in 2012 to bring large profits again this year.
The long term trend is still up for the metals sector but once again weakness has been seen, possibly influenced by the prospect of a stronger dollar during the coming months. Copper and Palladium continue to be the strongest markets in the sector, with gold and silver both falling to 5 month lows. A change of trend to down for these two metals is within range.
The dollar has been a mixed bag again this week, continuing on with the indecision seen the previous week. However, the dollar index did manage to advance by 1.03% for the week, largely due to its rise against the Euro, Pound and Yen.
The big moves have once again come from USD/JPY, which rose for an eighth consecutive week, adding another 2.41% to the recent move.
Interest rate futures
Large declines have been seen this past week in the interest rate futures sector, which may now be beginning to show be showing sufficient weakness to continue lower for a change of long term trend to down for the first time and what seems like an age. The largest move came for the 30 year T-bond, which fell 2.61% for the week and looks likely to be the first from this sector to have a change of long-term trend. One of the problems this sector may face is that so many people have been expecting a large downtrend for so long, that such a move may fail to fully materialize. As Market Wizard Paul Tudor Jones used to say, “That which is obvious is obviously wrong”.