It’s been a volatile week in many markets, where large swings in both directions have been seen. Much of this volatility appears to be due to the various political evens in the U.S., which going on the basis of price action seen on Thursday and Friday appear to be heading towards at least a short-term resolution.
The long-term trend remains up for stocks, mixed for the dollar and commodities and down for interest rate futures.
The S&P 500 ended the week higher by 0.85% but had been significantly lower on Wednesday, where the index fell to its lowest level since early September. In last week’s update we wrote: “The long-term trend remains up and a push to slight new highs can as yet not be ruled out, especially if a resolution is reached in the next week or so in Washington, ahead of the October 17 deadline for raising the debt ceiling. Such an agreement seems highly likely and this will probably lead to a relief rally for stocks.” The relief rally may have begun on Thursday and we shall see how long it continues.
The Nasdaq 100 is still the strongest of the indices we trade at LS Trader and following a strong recovery rally is back within range of new highs for the year. The Dax, the strongest of the European indices is also back within range of new all time highs and may breakout higher this coming week. All time highs for the Dax were posted at 8779 on 19th September basis the December contract.
The VIX had a hugely volatile week, initially rising to its highest level since July but then ending the week lower. Moves such as this highlight the market’s uncertainty as it shows extremes of fear followed by relief.
Gold led the metals markets lower this week, breaking down to new lows for the current move and reaching its lowest price since July. This move has so far been unconfirmed by silver, which as yet has not taken out support. Copper, one of the most reliable economic indicators, hence the name Dr Copper, is also in a long-term downtrend and may break lower soon in spite of some strength seen at the end of the week. With the trend remaining down for all markets in the sector, new lows for the year are still a possibility.
On balance the trend for commodities is down. There are a few exceptions, one of which is sugar, which has made a bullish run from the low posted in July, completing a change of trend to up this week with strength. Although this move runs counter to the majority of commodity markets, there is plenty of upside potential here over the coming months. Another exception is feeder cattle, which this week completed five straight weeks of gains, advancing by 2.01% this week. The next target is resistance at 171.80 basis the November contract.
The U.S. dollar index rallied mid-week, briefly poking above resistance but then tapering off into Friday’s close. The trend remains down and another test of the recent low at 79.72 may yet be seen. However, as we wrote last week, should dollar strength continue the recovery might continue higher to close the gap at 81.51. Currently trading in the currency markets is mixed with the trend favouring the dollar in some markets but moving against the dollar in others.
Interest rate futures
Interest rate futures ended the week virtually flat across the sector with some indecisive doji/spinning top patterns printing on the weekly charts. This is consistent with our view that the recent rally, which has now changed to sideways price action, is corrective. With the long-term trend still being down the odds favour a resumption of the downtrend, particularly if the local top posted a couple of weeks back continues to provide resistance.