The past week has seen stocks pull back from all-time highs, the dollar rally resume, interest rate futures continue their decline to multi-year lows, and energy markets rally to multi-year highs. Market conditions are as expected for the final quarter of the year, which is often the best time of year for market trends.
The stock markets reversed sharply this week after the S&P 500 failed to make a new all-time high on Wednesday and declines followed through to the weekend. Weakness at the end of the week has violated a 14-week trend line that has been in place since July.
The Nasdaq 100 completed a double top pattern on an intraday, but not a closing basis. That pattern would project to another 300 points of decline. However, there was decent buying action coming in from the lows of Friday which may halt the declines and be a spring back to higher prices. The long-term trend remains up.
The Nikkei has also seen weakness having fallen just short of our target of 24690. Last week’s lows now represent key support for the short-term.
From last week: “Palladium is the strong horse in the sector, but Friday’s candle was a doji, and with both volatility and sentiment at very high levels, we may see a correction soon. The long-term trend, however, remains up, and a test of all-time highs which were printed back in January at 1124.9 may be seen over the coming weeks.” Palladium did correct lower as expected but has helped above support, keeping the uptrend intact.
The energy markets have seen further strength this week with all markets in the sector rallying to new highs for the current move.
From last week: “USD/JPY has continued higher to reach its highest level since December 2017. This week’s price action has consolidated above the top of a symmetrical triangle that dates back to 2015. This suggests that the current move has a long way yet to run over the medium-term timeframe.” The dollar continued its rally against the Yen this week, as it has against the other majors. Renewed dollar strength has seen it push the Australian and New Zealand dollars to new lows for the current move.
Interest rate futures
From last week on the 30 Year T-Bond: “The right shoulder low at 141.09 was broken, which invalidates the potential head and shoulder bottom and now projects further weakness towards 135. This week’s low was the lowest low for almost four years.” This week saw further declines for the 30 Year T-Bond, which this week printed its lowest price since September 2014.
The entire sector remains weak. The last market in the sector, the UK Long Gilt, could also test major support and complete a change of trend to down this week.