The past week has been a bullish one for stocks but has also seen the dollar weaken. Once again though the dollar’s decline has not been in proportion to the gain in stocks. Although stocks and the dollar have continued their inverse relationship, the moves in the dollar have been much less than the corresponding move in stocks. Now that we are entering the final trading week of the year the long-term trends are still down for stocks and commodities, and up for the dollar and interest rate futures.
The past week has been bullish and has seen the S&P 500 rise up to the resistance area around 1260. Due to the proximity of the market to the resistance level and the fact that the momentum in the short term is strong as well as the fact that there is hardly any upper shadow on Friday’s candle (indicating that the market h ad no sellers into the close and that the close is almost at the high of the day) the probability is quite high that the initial resistance level will be taken out. This will likely lead to a test of the 1280 resistance area and possibly the 1300 level as well in the next couple of weeks and a possible change of long term trend to up. If these levels do get taken out then we may see a continuation in the New Year towards this year’s highs around 1355. However, for now at least the trend is still down and the market remains below a couple of decent resistance levels.
As a general rule, the most bullish set up is when the Nasdaq 100 leads the way but that is not happening at present and the Nasdaq is still some way behind the S&P 500 and is currently right on the 200 day moving average, whereas the S&P 500 has already moved and closed above it.
For much of the past few months the weakest commodity sector has been the grains. This week has seen some of these markets find support and possibly begin a reversal. Some of the trends have already come to an end for the time being whilst others are still in the trend and remaining below resistance. Considerable further strength would be required for a long-term change of trend to up and due to the extreme bearishness over the past few months that looks unlikely, at least for the foreseeable future.
Crude Oil had a very good week advancing by 6.33% having found support. This move took the market back up to test the $100 level and also above the 200 day moving average. The long-term trend remains up but it remains to be seen if there is still sufficient momentum to continue higher towards the recent highs.
The dollar declined over the past week and perhaps importantly for the short term the dollar ind ex dipped back below the 8000 level. Since this level had previously provided good resistance it should subsequently have provided good support due to a change of polarity where prior resistance becomes support. This may now have too much impact if the 8000 and 8050 levels can be regained in the short term otherwise we may see further dollar weakness.
The dollar ended the week lower against of all the majors over the past week but the long-term trends still favour the dollar almost across the board with the exception still being against the Yen, the only major that the dollar managed an advance against, albeit by only 0.25% for the week.
Interest rate futures
Interest rate futures briefly hit new highs again on the 5 & 10 year T notes with yields falling to new lows before weakness came back to the fore and we saw the formation of some reversal patterns at resistance levels. This may well take the markets further down to test short-term support but for now the trend is still up. On the 30 year T bond, the 14650 level has provided considerable resistance and it did again this week with the market unable to push through. If we do get a Santa Claus rally continue over the next few trading days then interest rate futures may continue to fall in the short term.