Not much change was seen in the bigger picture this week with the long-term trends continuing to favour stocks and the dollar. The trends remain mixed for commodities with strength in some sectors, but weakness overall. The long-term downtrend for interest rate futures resumed this week.
Friday was also triple witching with quarterly stocks and currencies rolling forward to the December contract.
The long-term trend remains up for three of the four stock indices that we trade at LS Trader, with the trend up for the S&P 500, Nasdaq 100 and Nikkei, and down for the Dax, which is by far the weakest of the four. The Dax did manage a corrective rally this week, and the long lower shadows of three of the past six daily buys do show demand coming into the market at those levels. However, the trend remains down, and it will take an additional 1000+ point rally to change that.
The Nasdaq 100 and S&P 500 both held above support and remain bullish. The S&P 500 looks poised for new all-time highs again this week.
The false breakout of the head and shoulder pattern on the 30th August now appears to be a premature breakout as strong buying action on Thursday and Friday broke the neckline again and exceeded the August high. The pattern now projects higher to 24690, some 1595 points above Friday’s close.
The metals markets have had a mixed week with some strength and weakness being seen. Overall, the entire sector remains in a long-term downtrend with only Palladium showing any real signs of strength in recent weeks.
The energy sector has also seen some weakness again this week. Brent Crude pushed right up to test resistance but was unable to push through and fell back into the weekend. The long-term trend remains up for energies, but weakness is evident in the short-term.
The dollar index tested support this week and support held firm. The long-term trend remains up for the dollar against all of the major currencies. The weakest currencies at present, namely AUD/USD and NZD/USD both managed a small corrective bounce this week but remain in long-term downtrends.
Interest rate futures
Interest rate futures have seen continued weakness this week with both the 5 Year T-Note and 3 Month Eurodollar breaking out to the downside to resume the long-term downtrend. The initial target for the Eurodollar is 96.90 and possibly 96.69 over the coming months.
We have written in recent weeks about the potential head and shoulders bottom on the 30 Year T-Bond. That pattern never broke the neckline and has since turned south and now looks set to test the right shoulder, at 141.09. If the market falls below that level, the head and shoulders pattern will fail and would give a downside target in the region of 135.
The long-term trend remains down for the entire US interest rate futures sector in spite of near-record commercial net long positioning (which has decreased over the past few weeks). The trend for UK Long Gilts remains up.