In recent weekly updates we’ve been writing about the importance of the 1700 level on the S&P 500 and have been suggesting that this psychological level will likely determine whether the rally has more legs or whether a correction is imminent. Having failed several times, the S&P 500 finally cleared this key level and perhaps more importantly, closed the week out above it. This would suggest further strength is likely, at least in the near term.
Many markets have been quite volatile this week, which is often expected during the week of the FOMC meeting. The long-term trends however remain unaffected and are still up for stocks and the dollar and down for commodities and bonds.
As mentioned above, the S&P 500 finally cleared 1700, posting new all time highs once again. The Nasdaq 100 was the most bullish of the indices with the September contract closing the week some 80 points higher than its low for the week.
The Dax also had a bullish week, which was quite volatile and saw some gaps on the daily chart. Unlike its American counterparts, the Dax remains below its highs of the year, something that may change soon as there may be sufficient momentum to push this market higher to test the highs of the year. The Nikkei had a strong second half to the week and having found support around 13,500 rallied 1000 points in 3 days. The target here will be a test of
From last week: “The energy sector’s recent rally has fizzled out this week. Of interest certainly as far as US crude is concerned is that COT (Commitment of Traders) data shows that funds reached a new record net long position. Whilst this can be perceived as bullish, generally this suggests that funds have run out of buying power and unless small traders add to the move, a correction is often what follows.” Crude did indeed correct but not sufficiently to change the long-term trend, which is still very much intact. Friday saw an attempt at taking out the local top but the market was unable to clear that level. We may see another attempt at that level this week.
Also from last week: “We’ve been writing for most of this year that the technical picture suggested sharply lower prices for grains which should ultimately more than erase last year’s rally and lead to a decline below the 2012 lows, something that is very much still on target.” Grains have continued the long-term downtrend, led lower by corn. The soybean sector has also been heading lower, led by the weakest of the complex, soybean oil. Currently from the grains sector, only soybeans and soybean meal remain in a long-term uptrend, but if recent weakness continues in the impulsive manner seen in recent days, that will soon change.
The dollar has been a mixed bag and has seen strength and weakness at times during the past week against several of the majors. Considerable weakness has been seen in the commodity-based currencies, lead by the Aussie, which remains in an aggressive downtrend. Overall the long-term trends continue to favour the dollar.
We suggested last week that the 61.8% retracement level of the recent decline may prove to be a turning point for GBP/USD and that’s exactly what happened. The pound declined from within a few pips of that level, dropping 3 figures before recovering strongly on Friday. The longer-term trend remains down.
The Euro managed to clear the $1.33 level but has been unable to reach critical resistance, which remains in place at $1.3423. The Euro remains the most likely of the major currencies to confirm a change of trend to up against the dollar, but has so far been unable to do so.
Interest rate futures
The long-term trend futures ended the week marginally lower to flat and the trend remains down. Weakness seen on Thursday was largely corrected on Friday so the markets are clearly uncertain of near term direction.