Stocks have had another mixed week, and although the long-term trend for stocks is still clearly up, short-term price action is less clear. For US stocks the Nasdaq 100 remains the strongest and may breakout again to new highs soon, with a slightly upward seasonal bias between now and the first few days of September.
The S&P 500 fell below the 50 day moving average and continued lower, finding some support at 1631 before moving higher once more. The trend remains up but as August draws to a close and the weakest month of the year for stocks, September, being just a week away it remains to be seen as to whether we will see new highs again this year or whether weakness will resume and take stocks lower. September often begins with strength, for 2-3 days following Labor Day (2nd September) and then deteriorates into the weakest month of the year for US stocks. However, price action is far more important that seasonal tendencies, with the current trend being all-important.
The Nasdaq 100 traded in similar fashion to the S&P, this time finding support at just over 1650 basis the September contract. The trend here is still up and the Nasdaq remains stronger than the S&P 500 with new highs and a resumption of the trend looking more likely.
The Dax remains the strongest of the indices that we trade at LS Trader, but continues to trade sideways within a box range. A break to the upside above 8464.5 basis September could prove interesting and would likely lead to a test of the highs of the year. The long-term trend remains up for the whole sector at present.
From last week on grains: “With the strongest 2 markets in the sector being soybean meal and soybeans, these 2 will most likely be the first to breakout to the upside should short-term strength continue.” Both these markets made explosive moves to the upside, with soybean meal advancing 8.59% for the week and soybeans advancing 5.46%. The trend for these markets is clearly up and both remain bullish. Soybeans may encounter some resistance at 1333 basis the November contract, but if this level can be cleared a continuation to the 2012 highs may follow. The rest of the grains sector remains entrenched in a long-term downtrend and lower prices are still expected.
The metals sector has seen continued short-term bullishness. However, the trend for the sector as a whole is still down so the current strength in the longer-term timeframe is still viewed as corrective. Considerable further strength, particularly for gold and silver will be required before a change of trend and a more bullish outlook would be in place. Palladium and copper for now look the most likely to complete a change of trend to up, but further strength is required in these 2 markets also.
The currency markets have become increasingly volatile in recent weeks and for the most part without trend. Overall the long-term trend favours the dollar, the Euro being the exception, where the trend is now up. What is of critical importance for the dollar is the June low at 80.61 on the dollar index. As long as this level holds, the trend remains up for the dollar index and indeed the dollar overall.
GBP/USD is perhaps the most interesting currency market at present. Having failed to follow the Euro higher and also failing to take out critical resistance to give a change of trend to up, the trend remains down with a truncated rally, which may lead to an acceleration lower and a resumption of the longer-term downtrend. This scenario will be voided should the June high be broken to the upside.
Interest rate futures
Interest rate futures have had a mixed week with all markets in the sector continuing the downtrend and ending the week lower with the exception of the long bond. The trend is down across the board with the longer-term markets near their lows of the year. We continue to look for lower prices and higher yields over the coming months, with some corrections higher along the way.