U.S stocks are showing signs that they may have topped, although that is as yet far from
confirmed, as the long-term trend is still very much up. However, the strong
dollar appears to finally be weighing on stocks as it already has on
commodities. The long-term trends are still up for stocks and the dollar, up
for interest rate futures and mostly down for commodities.
From last week on the S&P 500: “There is nothing to suggest that a reversal lower is
imminent, but one would possibly have expected more decisive strength following
the break of 2000. Any bullish seasonal tendencies ended last week and we’re
now in what is historically the weakest month of the year for stocks.” The lack
of follow through following the break above 2000 had indicated that the rally
may be nearing and end, and price action confirmed that this week at least in
the short-term as the S&P 500 fell through support.
Long-term the trend is still very much up, but if the dollar continues to strengthen we
may see further weakness in the S&P 500 and may see the RSI test the 40
level in the next week or so. Whether that level holds or gives way will be a
good clue to near term price action.
From lastweek on the Nasdaq 100: “There is considerable bearish divergence on the RSI
from early July to current levels. This does not mean that the trend is over or
that a reversal is imminent, merely that momentum is waning.” The Nasdaq 100
continues to lose momentum and did close the week lower but still remains above
support. We expect that support to be tested in the coming days. Longer-term we
can look to the rising trendline from the April 15th low, which
currently intersects the market at 3950, just over 100 points lower than
Friday’s close. A break of that level may have longer-term bearish implications
but for now the uptrend is intact.
The CRB commodity index, which is not an index that we trade at LS Trader but is
nonetheless a good barometer for commodity prices, broke through a key support
level this week, a level that has previously provided a good shelf of support
around the psychological 500 level. This week’s break of that 500 level, with
prices falling to 496.95, was the lowest level seen in the CRB in over 4 years,
and may have further bearish implications for commodities, most of which are
already in confirmed downtrends.
From last week on gold and silver: “The RSI is in a bear range and the long-term trend is
down, suggesting that new lows may be on the horizon. Gold has also been weak
and a test of key levels here may also be seen soon.” Both gold and silver fell
through support as expected, which resumed the longer-term downtrend for silver
and confirmed the change of trend to down on gold.
Also from last week: “A test of a key shelf of support in Natural gas looks likely this
week. This level, which has held since January this year may prove critical,
and a decisive break of support may pave the way for lower levels.” The shelf
of support held firm and natural gas bounced sharply higher on Monday and
Tuesday before reversing lower once more. A test of support looks likely once
again this week.
The dollar continued to strengthen this week and completed confirmed changes of trend to
up on the basis of LS Trader’s proprietary trend indicator against the
Australian and Canadian dollars. This means that the long-term trend now
favours the dollar for all nine currency markets that we trade at LS Trader.
This week ahead may see volatility pick up considerably in the currency markets due to
the 2-day Fed meeting beginning Tuesday, and the Scottish referendum on
Thursday which may move the Pound around considerably.
Interest rate futures
The long-term trend remains up across the board in the interest rate futures sector but prices have been sharply lower this week.
A change of trend to down is coming within range for a couple of the markets in
this sector but further weakness will be required before that happens. Even the
Euribor, which has recently been by far the strongest of the interest rate
futures markets that we trade at LS Trader, ended the week lower, and as we
mentioned in last week’s update, further gains still look limited with par just
above current levels.