As we have been covering in the past couple of weekly updates, we have been expecting further declines for stocks and that’s what we’ve seen. So far the declines have not been particularly impulsive, which for now points more to recent weakness being corrective rather than a precursor to a steep and extended decline. For now the May 22nd highs still look as though they will be the interim top, but there is still a possibility that these highs will be tested and exceeded over the coming weeks.
Although the recent uptrend for stock has ended according to LS Trader’s proprietary trend analysis, it’s premature to say that a change of trend is imminent. Typically the summer months are weak for stocks, hence the old adage of sell in May and go away, but the only thing that can confirm a change of trend is price action, and as yet the weakness seen is insufficient for that purpose.
This Friday is quarterly stock expiration, known as triple witching. We are therefore now focusing on the September contract.
For the S&P 500, support is at 1591 on The September contract and as long as that level holds, the possibility remains for a rally back to test new highs. Should that level give way we may see further short term weakness back to around the 1525 level, where there is a decent shelf of support.
The Dax and Nikkei continue to lead the way to the downside and both indices are weaker than their US counterparts. Basis the September contract, there is support at 12420 on The Nikkei, which if broken may see further declines to 12000.
Gold and silver both moved slightly higher this week, but not with sufficient strength to end the downtrend. The trend is therefore still down and lower levels may yet be seen, although it will not take much from current levels to bring these trends to an end.
Coffee had another week of weakness and the downtrend continues. This past week saw the September contract decline by 4.03% and our target around 107 remains in place.
The energy sector has continued with recent strength, with Brent crude this week testing the 200 day moving average. US crude has already moved above the long term moving average, as has no leaded gasoline. The trend for the sector however still remains down but US crude looks likely to be the first market in the sector to complete a change of trend to up.
The grains markets are still mixed as before. This past week saw further strength for soybeans and soybean meal, both of which hit new highs for the year. Wheat however has remained weak and is still near the lows of the year. Corn is also not far from its lows for the year but as yet has not broken down sufficiently to resume the longer term downtrend. The biggest weekly move for the sector came from rough rice, which advanced 4.10%. There is now a possibility of a change of trend to up, with an upside breakout.
Currencies rolled from June to September on Friday so all currency commentary now relates to the September contract.
The dollar index declined for a fourth consecutive week and may possibly continue to decline to the February lows around 7950. For now the long term trend is still up, as it is for the dollar against most of the majors. However, the trend for the dollar is closer to changing to down than it has been for quite some time.
Currently the only major that is still in a long term uptrend against the dollar is the Euro. Further weakness will be required for the dollar against the other majors before further changes of trend are seen.
Interest rate futures
Interest rate futures have continued with choppy trading. Having fallen to new lows for the current move, the sector then bounced higher. The trend is still down but price action has been bullish during the second half of last week. As we have covered several times over recent months, there is considerable long term downside potential for this sector, it’s just really a matter of when these markets truly break down.