The past week was a shortened trading week due to the US Labor Day holiday. As we wrote last week, this holiday is often followed by some strength for stock indexes early in the week but that often runs out of steam relatively quickly, and that’s exactly what happened with some strength being seen up to mid-week followed by a continuation of prior weakness.
The past week was an eventful one on several counts due largely to the unprecedented intervention by the Swiss National Bank to weaken and peg their currency and this led to some huge moves in the forex markets, with the US dollar as the prime beneficiary. These moves have begun to shift the long term trend in favour of the US dollar. The long term trends remain down for stocks and mixed for commodities.
As we wrote in last week’s update, “September is historic ally the weakest month of the year for stock indexes on a seasonal basis but the month can often start on strong footing after the Labor Day US holiday, which is this Monday. Weakness often gets underway towards the latter part of this coming week and into the following week.’ As mentioned in the introduction, this is exactly how the week panned out, and after a reasonable start to the week the S&P 500 ended lower and may now continue lower towards the recent lows.
We also wrote last week about the German Dax and that we expected the index to continue lower to target the next support level around 5270, and this target was hit and then exceeded as the Dax fell 6.42% for the week. The Dax has now been lower in 6 of the past 7 weeks. The next target will be the obvious round number at 5000, where we can expect some psychological support especially in view of the extent of the recent decline. Further out we may see a move towards the next support target around 4600.
Last week wrote that we may see another go at all time highs in the weeks ahead and we did in fact briefly see new all time highs during the past week. New all time highs now stand on the December contract at $1923.7. Following the new all time highs the market did sell off in quite a sharp 2 day move before finding support and moving higher once again.
There is however a possibility of a double top formation on Gold following this recent rejection at very similar levels to the prior high. This is not confirmed as yet and for it to be an actual double top the low point between the 2 highs must be taken out, which in this case is the low of the hammer pattern just above $1700.
Crude has had a couple of attempts at pushing out of the range and has moved briefly above the $90 level but has been unable to stay there and has subsequently moved back within the range. The shor t-term range on Crude therefore still spans some $15, from $75 to $90.
The dollar index shot higher over the past week as the Euro and Pound fell and the Swiss Franc made a huge one day move following an unprecedented intervention by the Swiss National Bank to weaken the Franc. In the long run this will be a terrible decision by the SNB as they will ultimately end up buying back all the other currencies that they have bought at a substantial loss that will probably run into the billions. It seems that policy setters around the globe are uniform in the fact that they completely fail to understand economics and the long term impact of their actions. Whilst in the short term this intervention may have the desired effect, in the long run the market is larger and will go where it wants to go.
Interest rate futures
Interest rate futures continue to press higher as yields remain at or near historic lows. The long-term trend remains up across the sector. How much further room there is to the upside remains to be seen but as yet there is little in the way of reversal signals to indicate that the trend is coming to an end.