We began last week’s update by talking about the double top that had formed on the S&P 500 and questioning whether that would end up being the high of the year. The market then began the week in bullish mood but that evaporated on Thursday and Friday, as did the week’s gains up to that point. The long-term trends remain up for stock indexes with the exception of the Nikkei, but all indices are looking under pressure in the short-term.
What is of further interest is that a potential double top could be forming in the Euro. It seems therefore that, due to the high correlation seen recently between the Euro and the S&P 500 that we may be on for some decent moves in stocks and currencies, depending on whether these patterns complete or not. For now the trend is still down for the dollar and remains mixed for commodities.
As we discussed last week on the S&P 500’s double top, using standard pattern measurements, would project to a decline to around 1380 on the December contract. If the prior week’s lows at just under 1420 can be taken out, that will be a very realistic target.
The Nasdaq 100 remains weaker still and declined by 1.7% for the week, with a test of the 200-day moving average looking likely this week. The 200-day MA currently sits at 2634.
The Dax continues to hold up much better than its overseas counterparts, and even managed to advance for the week. Support around 7200 appears to be the key for this market. If 7200 does fail, a drop to 6900 may follow swiftly. Similarly, new highs for the year are also in range but advances for the Dax may be kept in check by weakness elsewhere.
As expected, the uptrend for Gold did come to an end as resistance at $1800 proved to be too much for the yellow metal. The long-term trend however is still very much up.
Natural gas made another new 12 month high, albeit only by a small margin, as it continues to be the leader of the energy sector. No leaded gas and heating oil were both unable to push on, having recently both made new highs for the current move.
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.
The currency markets have seen a little more activity during the past week even though the dollar index ended the week lower by just 0.07%.
Probably the most relevant of currency markets at present is the Euro, which may be forming a double top as we mentioned above. For now a range is in place between approximately $1.32 and $1.28 and a breakout through either level may lead to a decent move, especially if the break is to the downside, where the potential is there for a drop to around $1.25 on the December contract.
As we wrote last week, the trend remains down for the dollar against virtually all of the majors but how long that continues to be the case for remains to be seen, especially if we have seen a top in stocks.
Interest rate futures
The trend across the interest rate futures sector is still very much up but upside potential still looks limited. This is an idea that seems to be present in this sector as all of the markets ended the week lower in spite of a bullish day on Friday. In the case of the 30 year T-bond, this bullish day on Friday completed a 3-day morning doji star, which is a short-term bullish reversal pattern. Whether the lows seen last week in this sector continue to provide support remains to be seen.
A change of trend to down is in range for some markets in the sector, due to a large extent to the duration of the consolidation seen over the past few months, where even though the markets have tested the highs, they have for the most part moved sideways. The shorter-term trend is beginning to look weak.