It’s been another bullish week for stocks following the announcement of QE3 from the Fed. This has been bullish for stocks and commodities but bearish for bonds and the dollar. The long-term trends are now mostly up for stocks and commodities and turning bearish for the dollar.
So far September has been another example of how unreliable seasonal tendencies are and why basing trading decisions purely on seasonality is folly. The long-term trends have been up for U.S. stocks for quite some time and have continued to be so over the past 2 weeks which our supposedly bearish.
The S&P 500 continues to look as though it may head higher towards 1500 although there was a shooting star pattern formed on Friday’s daily chart, which is a bearish reversal pattern but that’s not really too unsurprising considering the extent of the recent rally in such a short space of time. It would be a brave and foolish man to try and short this market at present and those that try to pick tops and bottoms usually end up getting hurt in a big way. As ever, the correct approach is to follow the money and simply trade with the trend, the path of least resistance.
The Nasdaq 100 was also in bullish mood once again and reached new highs since 2001. The Dax followed suit and even the Nikkei 225, the only index still in a long-term downtrend of the 4 made a nice advance. The trend is still down for the Nikkei but that may change over the coming weeks if the present bullishness continues.
This Friday is triple witching, so we can expect an increase in volatility as the stock indexes roll out of the September contracts into the December contracts.
It’s been another good week for Gold and as we wrote last week, the yellow metal looks set for a test of $1800. If $1800 can be cleared there is little in the way chart wise to prevent a rise back towards all time highs. Silver was also bullish and we remain on track for a test of our longer-term target around 3800.
Brent Crude continued to advance and confirmed a trend change to up. It has however so far been unable to build on that and actually came off the highs of the week into Friday’s close. Heating oil also changed trend to up and now only U.S. crude is in a long-term downtrend in this sector.
The dollar index fell 1.74% for the week and fell through the next major support level as the long-term downtrend gets back on track.
The Pound continues with its recent good run and remains on target for a test of $1.63 and further out possibly $1.67. The pound also continued higher against the Yen and may be targeting the 130 level next.
On balance the trend is shifting against the dollar versus most of the majors. The trend is still up for the dollar against the Swiss Franc and Euro but that may change if dollar weakness continues over the next couple of weeks.
Interest rate futures
As we have been writing of late, in spite of the interest rate futures sector still being in a bull market and relatively near all time highs, there was limited upside and the risk/reward for longs has not been favourable. The long-term trend is still up but this week saw some substantial moves lower, especially in the longer-term 30-year T bonds. The extended QE announced this past week by the Fed is being perceived as inflationary and is pressuring bonds. However, as before further weakness and a confirmed change of trend to down is required before attempting any short entries, but if the current short-term weakness continues that may not be far off.