The past week has seen some volatile swings in several markets, which have seen some large daily moves in both directions. Such moves have been seen in stock indices and currencies. Precious metals have bounced, but overall commodities remain weak, highlighted by continuing weakness in the energies sector, where Crude Oil dropped to a new 6½ year low on Friday.
The long-term trends by sector are unchanged and are still up for stocks and the dollar, mixed for interest rate futures, and down for commodities.
The S&P 500 has had a volatile week. Having opened in bullish fashion on Monday, a reversal was seen on Tuesday which continued Wednesday, culminating in a spike low and a sharp reversal back higher. This spike briefly pierced the long-term trendline, but the market recovered to end the week higher. The RSI is at 48.14, which indicates an almost total lack of trend, as the market trades in what is effectively a large box range that has been in place since February. The long-term trend is currently up, but a breakout from this box range could lead to a substantial move in the direction of the breakout. This range-bound trading has continued for longer than normal, and a decisive breakout is long overdue.
Gold and silver both rallied this week, and both cleared their respective trendlines, which have been in place since June and May respectively. The long-term trend is still down for both metals, and the RSI remains in the bear range, which suggests that once this counter-trend move is over, we may yet see declines to new lows again. Copper fell to its lowest level since May 2009, but Palladium did not make new lows this week and has rallied to test resistance. Resistance will likely be tested again this week, but the trend remains down for the sector.
In spite of some strength seen in the metals, the commodities sector continues to take a battering. The Bloomberg Commodity index dropped to its lowest level in 13 years this week, and commodities are down 62% since the top back in July 2008.
Crude oil dropped to its lowest level in 6½ years on Friday and is now down some 72% from the big $147 top in July 2008. Our long-standing target of 33.55, which is the 2009 low looks as though it could be reached this year. In terms of a correctly spliced together back adjusted contract, which forms a seamless stream of data without price gaps due to rollovers, Crude Oil is at its lowest level since our data began, all the way back to 1983. Brent Crude has also been extremely weak, but not quite as week as Light Crude.
The dollar index moved lower this week, breaking support in the process. The dollar has been weak against most of the majors this week. The Australian dollar has seen some very volatile trading this week, with a break of resistance, followed by a reversal to new lows, and then a reversal higher once more. The long-term trend is still down. The dollar continues to fare better against the other two commodity-based currencies of Canada, and New Zealand, and the dollar remains close to its recent high against both currencies.
As before, the big level to watch in the currency markets is the July low in the Euro. There have been several attempts at testing that level and so far each of them have held firm, which has resulted in the Euro returning to the middle of its recent range. The trend defining range is now considerably narrower than normal and a breakout in either direction could feasibly be seen over the coming weeks. If The July low is broken, that would strongly indicate a move lower and an eventual test of the March low. Conversely, a break of the May high would suggest a larger counter-trend rally, possibly to as high as the $1.2200 area.
Interest rate futures
Interest rate futures remain mixed. As before, the long-term trend is down in the longer-term markets in the sector but is still up in the shorter-term markets.
The long bond has been strong for the past few weeks and this week moved well past the 61.8% retracement of the decline from the April top. There was a spike higher on Wednesday, but the market was unable to hold those levels and dropped back, ending the week lower.
The 5 Year T-Note, which has been the strongest in the sector, rallied to a new high on Wednesday, exceeding the previous high posted back in April. However, as with the long bond, the 5 Year was unable to hold on to the gains and pulled back, ending the week slightly lower.