Stocks have continued their recent short-term weakness and indexes have been lower across the board this past week. The dollar has also had another bounce higher particularly in the last 3 days of last week. Long term trends are still intact although that may change soon for stocks if we get much further weakness. For now the trends are up for stocks, down for the dollar and commodities remain mixed.
As we have been writing of late, the S&P 500 continues to form lower highs and lower lows, which is a bear market set up. The past week was also the sixth straight week of declines. Last week we wrote “We may now see a continuation lower to test 1290. If support there gives way then there is little to stop a decline all the way to the March lows around 1240.” 1290 support was tested and did give way so the March lows wil l be the next downside target.
We also wrote last week about seasonal weakness and that the Nasdaq may decline towards 2250. The declines ended up being steeper than that and the index sailed through 2250, reaching 2217.8 and may now head for the next support area at 2200.
Gold moved to $1555 early in the week but has since pulled back to 1529. The long-term trendline that has been supporting Gold is still holding and may provide some support around $1500. We may yet see a continuation higher to test all time highs at $1577.7 on the August contract but that to an extent may depend on what happens to the dollar.
August Crude closed narrowly below the $100 level at $99.85 but is forming an interesting short term pattern with tightening price action. A breakout from this pattern may lead to a decent move in the direction of the breakout.
The daily charts still show a large number of long lower shadows on the daily candles showing support for the market is still in place. These lower levels may be tested this week though. More major support is in around $95.
The dollar index had a good bounce during the later half of the week and did not fall as far as the March lows as yet, and last week’s gains brought and end to the prior 3 week losing streak. The long term trend is still very much against the dollar but we may see a bounce higher in the short term. Support for the dollar index is at last week’s lows at just under 7400 and further down at the March lows but bulls (not that there are many at present for the dollar) will be targeting the 7700 area. Sentiment is down to only 6% bullish and may yet fall further towards 3-4% bullish but with the vast majority being bearish another bounce higher may well be on the cards in the not too distant futu re.
As continues to be the case for the past few weeks, both the Swiss Franc and the New Zealand dollar continue to fare better than the other major currencies and both of these markets hit all time highs again this week.
Ben Bernanke this week indicated that there would not be a further round of easing, known as QE3 but if economic data continues to come out as bad as it has of late some further form of easing seems likely.
Interest rate futures
Interest rate futures continue their gradually climb, ending the week marginally higher. Yields remain near their lows of the year and prices stay near their highest level since November. The long-term trend remains up across the sector.