Stocks did bounce higher as expected last week, possibly due to some seasonal upside bias. As we also wrote last week, that positive seasonal upside bias gives way to historically the weakest month of the year from the middle of last week onwards. We can therefore expect an up-tick in volatility for stock indices over the next few weeks, which may continue on from Friday’s long-legged doji pattern, which indicates confusion and indecision in the short-term amongst traders.
Our focus now shifts to the December contract for stock indices so the below comments now relate to December futures. The December S&P 500 rose by 1.37% this week but remains well off the pace set by the Nasdaq. The index still remains below the 50-day simple moving average, which it tested on Friday. As we wrote last week, if this month does develop along the week path that is seen historically, we can look for a move lower towards the 200-day moving average, currently at 1550, almost 100 points below Friday’s close.
The December Nasdaq 100 posted very slight new intra-day highs on Friday but was unable to push on, pulling back to close lower. The Nasdaq still remains the strongest in terms of strength this year and is nearest to its year’s high.
The Daxrecovered some of its recent losses but is still range bound. The long-term trend here remains up but should recent lows be taken out, further short-term weak retracing the entire advance from June 24th at 7660 over the coming weeks remains a possibility.
The Nikkei had a strong week, advancing by 4% even after Friday’s sell off. Of short term interest is the evening star 3-day bearish reversal pattern that has formed right at resistance. Often the best use of candlestick patterns is for when reversal patterns fail, and the markets break out above the high of the pattern (in the case of bearish reversal patterns). A move above last week’s high, particularly on a closing basis, would be bullish. The long-term trend for the Nikkei is still up, as indeed it is for all four indices that we trade at LS Trader. However, of the 4, the Nikkei is closest to a change of trend to down should sustained weakness be seen.
In last week’s update we wrote about the importance of the rising windows on both soybeans and soybean meal. On a closing basis both of these windows held, so they remain open and therefore still provide support. From the grains sector, only these 2 grains remain in uptrends, whereas the remaining 5 grains markets are all still in long-term downtrends. One of these is oats, which fell to new lows for the year this week, in line with our expectations of lower grains prices. Wheat came to within just over a point of its lows for the year, so the downtrend may resume this week on new lows. Corn, rice and bean oil all remain entrenched in long-term downtrends and a resumption of their respective downtrends looks to be only a matter of time.
Crude prices have experienced some volatility this week but both Light Crude and Brent Crude have rallied strongly from their respective lows of the week and remain in long-term uptrends.
The trends for gold and silver still remain down, as indeed they do for copper and palladium.
The dollar has been very mixed again this past week, beginning with strength and ending with weakness. Three of the currency markets broke out of their respective ranges last week as expected, but have so far been unable to push on. So far the long-term trends still mostly favour the dollar. Of particular interest this week will be GBP/USD, which may once more rise to test key resistance, something that it has been close to in 3 of the past 4 weeks, each attempt being unsuccessful.
This week sees quarterly currency expiration and a roll to the December contracts from September.
Interest rate futures
Longer-term interest rate futures declined to new lows this week but all bounced higher on Friday. The trend is still down and lower prices are expected on the longer-term horizon, but the steps to new lows are not in a straight line. Friday’s strength may be the start of a short-term corrective bounce before longer-term weakness resumes. Short-term interest rates were stronger still, and the short-term downtrend looks to be under threat this week in both the Euribor and 3-month Eurodollars.