Both stocks and the dollar have shown weakness during the past week but the trend for stocks remains up across the board of indices that we trade at LS Trader, whereas the trend is mostly down for the dollar. Commodities remain mixed and have not really benefitted from a weaker dollar as many would have expected they would.
The S&P 500 failed to find support at the 1700 level, which it should have done if the trend was still good near term. This calls the sustainability of the recent rally to new all time highs into question. The weekly charts show a bearish engulfing pattern which may lead to slightly lower prices over the coming days and possibly a test of the 50 day moving average.
The Dax has traded sideways to lower for the week and may now test support in the days ahead. The Nikkei continues to struggle with resistance at 15000. Friday saw a bear sash pattern printed on the daily charts which confirms the resistance level at the top of the pattern. However, as we have mentioned previously and as was the case a few weeks ago in this market, often the best use of candlestick patterns is when they fail and move above the top of a reversal pattern, especially on a closing basis. A close above last week’s high and 15000 in particular would be bullish. Should resistance hold, then a move back to the 50 day moving average may follow.
Only the Nasdaq 100 was able to produce a higher weekly close, but even that was below the daily highs produced the week prior.
Commodities have seen mixed price action over the past week, which is consistent with the long-term trends amongst commodity markets, some of which are up but most of which are down. The downtrend that commodities remain in overall is amply demonstrated by the CRB commodity index, which has seen the index decline from 691.09 in April 2011, to its current level of 518.96, a bear market by anyone’s standard. Grains, metals and energies all still remain under pressure with the majority of markets from each of these sectors in well established downtrends, several of them near to their lows of the year.
The dollar index ended the week slightly lower again and came close to testing the low set the previous week. Should that low be taken out the target for the dollar index remains at the 2012 Q3 lows around 79.50. The trend for the dollar index remains down so the odds favour a weaker dollar over the near-term. The long-term trends favour the dollar in only 3 of the currency markets that we trade at LS Trader, the Aussie, the loonie and the Yen.
Both the Euro and cable pushed higher again to within a few pips of the highs they posted the previous week. The next target for cable is still the $1.63 area, a level that capped the entire 2012 period and thwarted several rallies. The target for the Euro is $1.37, the high posted in early February.
Interest rate futures
Interest rate futures were higher; continuing their recent rallies, once again led by the 5 and 10 year T notes. Due to the extent of the decline from May, the current strength is still corrective and has yet to reach the 38.2% retracement of the same. It is possible that the rally may continue to the 38.2% and possibly even the 50% retracement level before resuming the long-term downtrend.