The past week has seen the Dow 30 reach a new all time high, completing the recovery from the March 2009 lows. Of import though is the fact that both the S&P 500 and Nasdaq 100 lag behind. Perhaps most interesting is the fact that the dollar has continued to rise along with stocks. Historically, stocks and the dollar are inversely correlated, so the fact that the dollar continues to rise as do stocks, bodes well for further dollar strength, a move that will likely accelerate once stocks start to correct.
Last week we wrote about the break of the downward sloping trendline on the dollar index that has held in place since 2002. This week marks the fifth anniversary of the major dollar index bottom at 70.70. Since then, in spite of huge amounts of stimulus and most commentators expecting inflation and the death of the dollar, the dollar has in fact risen 17%. Based on our analysis, the dollar still has much further to run to the upside.
This coming week sees quarterly stock and forex expiration as the March contracts roll forward to June.
As mentioned above, the Dow 30 reached new all time highs this week but the S&P 500 failed to do so in spite of making new highs for the current move. The chart set-ups are obviously still bullish, but further strength will need to be confirmed by the S&P 500 also reaching all time highs. Until that happens, there is a good possibility of a reversal, but for now the trends are clearly up across the sector. Basis the cash S&P 500, the market still has 25 points to advance to the 2007 high.
The Nikkei remains the strongest of the indices that we trade at LS Trader based on the strength of the current move, and this week saw the index rise to its highest level since September 08. Having this week cleared resistance at 12200, the path is now clear for a continuation towards 14000. The Nikkei trade is currently the most profitable trade for the LS Trader system this year, with 2360 spread betting points profit just from the March contract alone. Add to that the 485 points that we banked from the December contract, and we have a total profit of 2845 spread betting points from a single trade since we entered back on the 21st November last year.
Gold has drifted sideways in a tight range over the past week, suggesting that a bigger move is just ahead. The critical support shelf is within range and that will be the critical level for this market. If support holds that may lead to a rally higher, but if it fails, a sharp drop may follow. Silver has a similar set up.
US Crude did drop below $90 as we suggested may happen in last week’s update. The market has since rallied and is now testing the 200 day moving average, which may act as resistance. The trend is still down and our targets at $87 remain in place for now.
Orange juice held on to the 120 support area and climbed steadily until Friday’s sharp advance of 6.9% took juice to its highest level this year. The weekly advance of 10.09% is the largest weekly advance in months and keeps the uptrend intact. We may now see a continuation towards 144.15, the December 2012 high. That level is critical resistance.
The dollar index completed a fifth straight week of advances and may now continue to the next resistance level around 8350.
The British pound continues to get whipped, this week perhaps critically, closing below $1.50. AS we have written in recent weeks, there is now little in the way of chart support to prevent a decline of several hundred more spread betting points. The pound has now closed lower in 10 of the past 12 weeks.
The USD/JPY took out the recent highs to resume the longer term uptrend. If last week’s highs can be taken out, the next target will be just north of 97 on the way back towards parity further out.
Interest rate futures
It’s been a bearish week for interest rate futures, all of which have ended the week lower by some considerable margin. The 30 year T-Bond printed a huge bearish reversal pattern which took the market to new lows for the current move. The other markets in the sector printed similar price moves but remain slightly stronger than the longer term bond.