It’s been a bullish week for stocks as the U.S. indices continue to lead the way. The Dax has also had a change on long-term trend to up and only the Nikkei remains in a downtrend. The dollar has also declined and this has led to advances for commodities, especially the metals, most of which are now at multi-month highs.
This week sees the 2 day FOMC meeting on the 12th and 13th which always has the potential to move the markets, especially if something unexpected is announced. The majority of economists expect some form of QE3 to be announced, which will likely be bullish for stocks and commodities and bearish for the dollar. However, if no such move is announced we may see the opposite reaction as some form of QE3 is likely priced in to the markets already.
In addition there are a few potential market-moving events in Europe, the main focus of which will be on Wednesday.
This Friday is also quarterly forex expiration, so we will roll out of September and into December on our currency forwards.
The seasonal September weakness is nowhere to be seen so far as the S&P 500 continued to hold on to the support level that we wrote about last week and then shot higher on Thursday and Friday. Whether the S&P 500 can continue the current upside momentum and head towards the 1500 level and potentially the 2007 highs remains to be seen. The Nasdaq 100 was also in bullish mood, once again hitting new highs since 2001.
The Dax finally confirmed a long-term trend change to up having threatened to do so for the past few weeks. This week saw the September contract hit a new high for the year having cleared April’s highs.
The Nikkei 225 is still the weakest of the indices that we trade at LS Trader and even with a decent move higher on Thursday and Friday still ended the week lower by 0.22%. The trend remains down for the Nikkei but is now up for all the other stock indices.
Last week we wrote that Gold was likely to test the $1700 level and that September was a very strong month for the yellow metal. This week we saw a successful test of $1700 and then a strong move higher. The yellow metal now looks set for a test of $1800.
We also wrote that silver was looking set for a change of long-term trend to up and we also saw that this week. As with gold, silver is currently extremely bullish and may continue higher towards our longer term target around 3800.
According to the CFTC (Commodities Futures Trading Commission) money managers increased their net long bets on energy prices rising this week and took this figure to 4-month highs. Although we have seen strength in this sector of late the long-term trend for U.S. Crude and Brent Crude is still down but both are nearing changes of long-term trend. At present, only No leaded gasoline is in a long-term uptrend, with heating oil also gaining strength.
The dollar index fell back through the support levels that we have been writing about recently and also dropped back below the 200 day moving average. These events led to a swift move lower and a resumption of the longer-term downtrend for the index.
The Pound continues with its recent good run, clearing the $1.59 resistance and just pushing above $1.60. Our next target is around $1.63. The pound also advanced against the Yen.
The USD/CAD finally hit and then exceeded our longer-term target at 9835 and may now continue to decline towards last summer’s lows.
Overall the dollar is currently shifting back towards long-term weakness.
Interest rate futures
Interest rate futures ended the week mostly lower but most of the sector remains near all time highs and the long-term trends are still very much up.
We still see limited upside for the sector from here and the risk/reward for longs is still not attractive, but as before further weakness and a confirmed change of trend to down is required before attempting any short entries.