In last week’s LS Trader update we wrote about whether the reversal seen on the prior Friday was a pause in the recent weakness or the beginning of a recovery. The price action seen during the past week suggests that it was the beginning of a recovery and a move back to risk-on, a position that may continue further over the coming weeks.
The support that we had identified previously at 1340 on the December S&P 500 looks as though it may be the bottom for the immediate future, as the S&P 500 has continued higher for 5 straight trading days. The index is now back up above the 200 day moving average and a move towards the highs of the year over the coming weeks may be on the cards.
Due to the extent of weakness over the past several weeks, the trend is still down for the Nasdaq and we did see continued strength on Monday as expected, which continued throughout the week.
Last week we wrote: “The Dax is still the strongest of the indices and is still very much in a long-term uptrend in spite of short-term weakness.” Strength returned in force for the Dax during the past week as the market rallied some 5%, suggesting that we may see new highs for the year in the not too distant future.
As expected, the Nikkei 225 completed the change of trend to up having taken out key resistance. The Nikkei was not quite as strong as the Dax but still managed to advance 3.68% for the week and the trend is now up. We’re now looking for a continuation higher towards 9700.
Commodities benefited from a switch back to risk-on and this was highlighted by sharp moves higher for metals and to a lesser extent, energies.
Gold, as we suggested would happen last week, broke up through resistance at $1740 on Friday and this led to strong buying, including buying from George Soros. The trend for gold has remained up throughout the recent period of general market weakness and we will now likely see a continuation higher to test critical resistance at $1800. This level has held firm several times so stiff resistance can be expected. Should the market be able to clear that level, we would be at new highs for the year and the possibility of a move towards all time highs would come back into focus.
Palladium was the most bullish of the metals, advancing by 6.57% for the week and resuming the long-term uptrend in the process, followed by silver, which also made a strong advance, gaining 5.39% for the week. The trends remain up across the board for metals.
January Light Crude had a mixed week again but did manage to move above the $88 resistance level but still remains in a downtrend. Brent Crude continues to be stronger, and this week advanced by 2.28%. The trend for Brent is up.
Recent dollar strength came to an abrupt end as weakness for the dollar cam in almost across the board as risk-on became the strategy of choice one again. This led to some sharp reversals of recent trends against all markets, with the sole exception being against the Yen, which continues to be weaker still. We have written previously about our expectation for a much weaker Yen and that move continues to play out in the markets at present, with the next target at 84.00. Short Yen positions continue to offer excellent spread betting opportunities as the current trend progresses.
Interest rate futures
The interest rate futures markets were all weaker this week but the long term uptrends are still intact. Whether last week’s weakness is the beginnings of a larger move lower remains to be seen. Considerable further selling will be required before a change of trend to down is confirmed.