Monday is Labor Day in the U.S. so many markets will be closed, leading to a shortened trading week. Stocks have continued lower since the 2nd August high but may bounce a little over the next few days due to some seasonal upside bias. That seasonal upside bias then gives way to historically the weakest month of the year, after the middle of next week. The dollar could be poised to resume strength following recent corrective price action, which may trigger further weakness for commodities. Profitable trading opportunities look to be plentiful as we move into the final third of the year.
September often begins with strength, for 2-3 days following Monday’s Labor Day and then deteriorates into the weakest month of the year for US stocks. As we have written many times in previous years, the current trend is of far more importance that seasonal tendencies. In the short-term the S&P 500 has continued with weakness since posting the all time high on the 2nd August. This week has seen the index move and close the week below the 50-day simple moving average. Weakness may continue through this weak month down towards the 200 day moving average, currently at 1550, which also represents a key support level basis the September contract.
The Nasdaq 100 has held up better than the S&P 500 and in fact made a slight new high this week intra-day but was unable to push higher and a swift sell-off followed. The tech index remains above the its 50 day moving average, but continued weakness for the S&P 500 will likely see that level tested by the Nasdaq.
The Dax was unable to breakout higher from the box range and instead broke lower in what was one of the most bearish weeks in recent times with the index shedding 3.56%. The long-term trend here remains up but last week’s technical damage suggests further short-term weakness ahead, possibly retracing the entire advance from June 24th at 7660 over the coming weeks.
Both soybeans and soybean meal gapped higher at the open Monday and continued recent bullishness until Tuesday, at which point selling returned which retraced much of the week’s gains. We can now look for the gap to provide some support for both of these markets and for strength to resume. However, if the rising window (gap) is broken, further weakness may be seen. Similar price action was seen in the other grain markets, the exception being that the trend for the remaining markets is still down.
Gold reached a 15-week high this week and silver reached a 20-week high, both moves that show the extent of the recent counter-trend price action. However, the trend for the sector as a whole is still down so the current strength in the longer-term timeframe is still viewed as corrective. Considerable further strength, particularly for gold and silver will be required before a change of trend is confirmed, something that at this stage looks less likely. If last week’s highs hold, the possibility of further weakness possibly to new lows increases over time.
In last week’s update we wrote about the importance of the June low at 80.61 on the dollar index and said that as long as that level holds the trend remained up for the dollar index and the dollar overall. Well that level did hold and the index pressed higher and now looks to be on the cusp of an up-side breakout and a resumption of the longer-term dollar bull market, should the breakout be successful.
We also wrote that the failure of GBP/USD to take out critical resistance and a truncated rally pointed to a resumption of the long-term downtrend and acceleration lower. We did in part see that this week but the decline was halted by support at $1.5400. A break of this level may lead to lower prices and a test of the next support level at $1.52. Further out we are still looking for the July lows around $1.48 to be taken out.
Interest rate futures
Bonds and T notes rolled from September to December this week. The past 2 weeks has seen mostly corrective, counter-trend price action which may continue near term. The long-term trends for the sector remain unaffected and are down across the board. The longer-term view still points to lower prices and higher yields over the coming months but a moderate correction higher may be seen first.