Stocks have continued to edge higher during a week that has seen relatively little volatility in the currency markets, which have mostly traded sideways. The big price moves this week have come from the commodity sector, in particular the grains markets, which have continued their long term bear market trend with sharp selling on Thursday. This is very much in line with LS Trader’s proprietary trend analysis, which continues to look for lower grains prices in 2013.
Monday is a Bank Holiday in the UK, but US markets are open as normal so we should see a return to more normal trading following a quite week this week.
The S&P 500 hit a new all time closing high this week but still remains below the all time intra-day high basis the cash S&P 500 at 1576.09 reached on 11 October 2007. We may well see that level tested this week as the markets are typically bullish following a long holiday weekend.
The Nasdaq 100 remains just below the 2815 resistance level on the June contract, and that level will likely be tested this week. Our highly profitable Nikkei trade continues to run, but as per the US indices that we trade at LS Trader, the range remains tight.
One thing that is of importance is the near record short position that has built up by commercial funds as reported in last weeks COT (Commitment of Traders) report. Commercial funds moved to within 1% of their record net short position. At the same time, hedge funds have reached a record net long position. With both major players at such extremes, a big move is in the offing and it could go either way. This battle between commercials and hedgers probably explains the tight range seen in stocks and suggests that a break of the range, either up or down could trigger a large move. In 2007, commercial selling began a month ahead of the 2007 top and we all know what happened then. If selling breaks through support, watch out below.
Resistance for June gold remains in place around $1620 and the market is short term bearish below that level. Critical support remains in place at the February low. Silver has edged lower and is approaching critical support likely ahead of gold. The February lows remain the key levels to watch for both markets.
Last week we wrote on U.S crude: “Friday saw a bullish engulfing pattern printed on the daily charts which suggests upside momentum may continue next week and that we may see a test of $95 on the May contract.” The 200 day moving average appears to have provided support once again for crude and this led to a bullish week and a gain of 3.76%. The $100 barrel level is once again in range, as is a change of trend to up.
In last week’s update we wrote that critical resistance on the June dollar index at 83.42 needed to be cleared in short order for the uptrend to continue near term. Initially we saw the index move lower but it did regain and go on to exceed the resistance level, posting a new high for the current move at 83.52. That level now is the new resistance level that needs to be cleared to keep the dollar bull trend intact. For now the long-term trend is up.
The Euro fell to its lowest level since November and may be heading lower for a test of critical support at $1.27 basis the June contract. If that level can be taken out, an extended decline towards $1.21 may follow over the coming months. A move such as this will not unfold in a straight line and there will be some corrections along the way. The trend for the long term looks lower.
Interest rate futures
Interest rate futures shot higher this week for a third straight week. As was the case last week, the long term trend is still up for Eurodollars and 5 year T-notes, but remains down for the 10 year and 30 year markets. The 30 year T Bonds reached a critical resistance level on Thursday and then edged lower, forming a spinning top on the daily charts. This makes Monday’s trading key for this market as a move lower would confirm the resistance level, but a break may lead to a continuation higher over the coming weeks.