The double top on the S&P 500 has continued to exert a downward force on the S&P 500 and the potential double top on the Euro that we have written about previously may be confirmed this week as a test of the key support and intervening low between the two highs looks likely this. The outcome of that may have an impact on where the markets move for the next few weeks at least.
Additionally, the U.S. Presidential election is just over a week away and speculation mounts over who the victor will be and what the impact will be on the markets. My view is as ever the same, forget guessing and predictions and let the market tell you where the markets want to go simply by following the trends. Currently these trends are up for stocks, and mixed for the dollar and commodities.
We have written over the past couple of weeks that the double top on the S&P 500 may take the market down to 1380 if support at 1420 was taken out. Support was taken out and the market continued lower before finding new support at 1394. This suggests that there still may be further downside ahead but for now the trend remains up.
The Nasdaq 100 continues to lead the decline and moved below the 200 day moving average as we suggested may happen last week. Friday did see a bit of a recovery and the long-term trend remains up. The shorter-term trend is down.
The Dax fell through support at 7200 early in the week but was able to regain that level on Friday as the index bounced off a long-term upward sloping trendline that has held since late June. The trend is still up for the Dax and it continues to hold up much better than its overseas counterparts. A close below 7200 will likely lead to a test of last week’s lows and a probable drop towards 6900, the next support area.
Gold continued its recent decline and fell to $1700 before a minor recovery. This decline took the market to its lowest level in 7 weeks and below the 50 day MA. The 200-day MA looks like the likely next downside target around $1670 but for now the long-term trend is up.
Last week we wrote: “Crude remains range-bound between $94 and $88, with the long-term trend still being down. Since the trend is down, a test of $88 looks more likely, with considerable downside room should support there fail.” As expected $88 was tested and taken out and a move to $85 followed, where support has so far been found. If last week’s lows can be taken out, a move towards $80 looks on the cards.
The currency markets have been mixed once again with the dollar advancing against some majors and declining against the others. Overall though the dollar advanced, reflected by a weekly gain of 0.59% for the dollar index, which was heavily influenced by weakness in the Euro. This advance took the index back above 80 to 6 week highs. The trend however is still down.
As covered previously, probably the most important of the forex markets at present is the Euro. A range is still in place between approximately $1.32 and $1.28 and a breakout through either level may lead to a decent move. A break through support, which at this point looks more likely, would confirm a double top and give new downside targets of $1.25 on the December contract.
Interest rate futures
Last week we wrote about the 30-year T-bond and the 3-day morning doji star pattern that had formed, suggesting that the lows of that week may provide support and some bullish momentum. On a closing basis the lows did hold and the bonds pushed higher for the week. Interestingly this week a hammer has formed on the weekly charts so there is definitely good support around 146 in this market, meaning that the uptrend is still in progress.
A change of trend to down is still in range for some markets in the sector but further weakness will be required before the trend changes to down.