Stocks have continued their recent advance, once again posting new all time highs, whilst the dollar has fallen against all but one of the majors. Interest rate futures have also risen but commodities have remained mixed. The long-term trends are up for stocks, mostly down for the dollar, mixed for interest rate futures and down for commodities.
In last week’s update we wrote that it was premature to call a top in place for stocks and price action confirmed that view this week. The S&P 500 rose to new all time highs once again, advancing by 1.56% for the week and coming within 4 points of the 1800 level.
The Dow 30 is also closing in on the key 16000 area, another round number target, as is the Nasdaq Composite (not the 100), which is closing in on the 4000 level. Round numbers often provide psychological resistance and it is of interest that these 3 U.S. indices are all approaching them at the same time. Current momentum suggests that these levels will be cleared and that will likely be bullish, especially if all 3 indices close above round number figures, which would suggest further upside over the coming week’s possibly extending to year-end and the fabled Santa Claus rally.
From last week on the Nasdaq 100: “the index found support at the 50-40 handle on the RSI, an area that often provides support in up trending markets, so even though price support levels were broken, there may yet be another push higher to new highs for the year.” The Nasdaq did indeed continue higher and reach new highs for the year as expected, and there may yet be further upside. The key will be how the S&P 500 handles 1800.
The Dax missed out on new all time highs by 5.5 points and the price action here is far less convincing than in other indices. It is likely that due to the proximity to the high that resistance here will be tested once more.
The biggest move came from the Nikkei, which put in an extremely bullish week, advancing by some 7.43% and clearing key resistance. There is now only fresh air between last week’s high and the high of the year at 16240 basis the December contract.
Metals all pushed lower this week with silver and copper breaking out to the downside. Gold also came close to breaking lower this week but just about held on. Of interest to the metals sector was the Yellen testimony (the next Fed Chair and a huge fan of further QE), which would by many be viewed as inflationary, suggesting higher metals prices. When markets don’t react to what is apparently bullish news, it suggests hidden selling pressure is present in the markets.
Although both gold and silver did creep higher from their respective lows of the week the moves were far from convincing under the circumstances. If metals don’t rally in the presence of bullish news, what will push them higher? For now the trend remains down across the sector and a break lower, especially if gold and silver fall below last week’s lows, may follow.
The dollar index fell for the week and the downtrend remains intact. The dollar was in fact lower against all of the majors with the exception of the Yen. We have written many times previously that dollar/yen tends to move independently of other currency markets and that continues to be the case.
The correlation between the dollar/yen and the Nikkei is high, so with the Nikkei making a convincing move to the upside, USD/JPY may follow and new highs for the year may be seen before year-end, should a couple of key resistance levels be cleared in the next week or so.
Interest rate futures
Higher prices have been seen across the board in the interest rate futures sector but the long-term trend is still mostly down. The rally from the September lows has been sufficient only to change the trend to up for the 5 year T-note, but the move to the upside has yet to be confirmed. The longer-term markets in the sector are still lagging behind, where the trend remains down.