The past week has seen considerable weakness in the metals and energy markets and sentiment is reaching extremely bearish levels in both of these sectors. The S&P 500 matched its high of the year but was unable to break through, and selling followed, which took the Nasdaq 100 lower as well. The dollar has seen mixed trading but did reach new multi-year highs against a couple of the majors. Interest rate futures have rallied as stocks have sold off, and commodities, for the most part, remain deeply in a bear market.
The S&P 500 matched its May high to the point, but was unable to print new highs. The RSI also failed once again to clear the 60 level, and the market turned sharply lower. The long-term trend remains up but this week’s weakness has seen the S&P 500 fall to within the middle of the wider trading range, meaning that a downside breakout is as likely as a breakout to new highs. These are interesting times for global stock indexes and the consolidations that have lasted for pretty much all of this year to date could be coming to an end.
From last week: “This move saw Gold drop below the key November 2014 lows and may now continue lower towards our next target at 1090.” Gold dropped like a stone during a period of heavy short selling shortly after the markets opened late Sunday night, easily falling through our target at 1090. Further weakness followed later in the week, which culminated in a new low on Friday at 1073.7, basis the December contract. This is Gold’s lowest print since September 2009. The RSI fell 20 20.21, its lowest level since April 2013.
Silver has also seen some weakness but remains above its December low. That low was at 1427.5, and could be tested this week. Copper fell to a new six-year low, and that does not bode well for the global economy. Copper is known as Dr Copper due to it being a good indicator for the global economy, and the moniker stems from the idea that the metal has a PhD. in economics.
Probably the only bullish thing that can be said for the metals at present is that sentiment is reaching extreme bearish levels and this often indicates that all those that want to sell the market are already in and that there is, therefore, little left in the way of selling pressure. However, sentiment is by no means a timing indicator, as sentiment can remain negative against a market for months.
Sentiment is also very bearish against the crude oil markets, where the percentage of bulls has dropped to just 8% in Crude oil. Brent Crude fell through support as suggested in last week’s update and continues to head lower. Crude has fallen to within a dollar of the March low at 47.35, basis the back adjusted continuous contract. We continue to look for new lows in both Crude markets although Brent still has almost $5 lower to go.
The currency markets have been mixed, with continued dollar strength being seen against the commodity-based currencies, where new multi-year highs have been seen against both the Australian and Canadian dollars. The other majors have been less clear, but both the Euro and Swiss Franc are approaching very key levels, and these levels could be tested in the coming days.
Of particular interest will be the dollar index, which is just below key resistance, and the Euro, which is close to testing key support. If both of these markets breakout (dollar index up and Euro down) then we can expect to see continued dollar strength that should lead to a rally for the dollar index back towards its highs for the year, and the Euro fall lower towards its low for the year. Such moves would also lead to dollar strength against the rest of the majors.
Interest rate futures
The interest rate futures markets have rallied this week, in particular, the longer-term markets, which is as expected due to the weakness seen in stocks this week. The long-term trends are still mixed in the sector, with the shorter-term markets remaining in long-term uptrends and the longer-term markets still in downtrends. It will take considerable rally for any of these markets to regain their highs posted earlier in the year, and it would probably take a steep sell-off in the U.S. stock indexes in order to see such a move.