The FOMC meeting came and went during the past week and delivered pretty much what market participants had expected, further stimulus. This led to further downside pressure for the dollar but did not do much for U.S. stocks, which have lagged behind their overseas counterparts.
As we move in to the last two trading weeks of the year, the long term trends are up for stocks, down for the dollar and mixed for commodities.
The S&P 500 began the week in relatively convincing fashion, breaking through prior resistance and then continuing higher, but the latter half of the week saw the earlier gains erased. The trend is still up for the S&P 500 but this weeks price action has not been convincing.
The past week was even less convincing for the Nasdaq 100, the only stock index that is still currently in a long-term downtrend. The week ended with three strong selling days, which took the March contract back below the 200 day moving average.
The Dax added a fourth straight week of gains and now that the market has been able to hold above prior resistance, which should now act as support, we may see a move towards the May 2011 highs around 7700.
The Nikkei was the strongest of the stock indices and advanced 2.35% for the week, easily taking out our 9700 target in the process. The next target is our longer term upside target at 10200, which are the highs of the year so far.
Gold and silver have both been further pressured this week as both metals declined for a third consecutive week. The trend is still up for both of these metals but there appears to be little buying at present.
Copper and Palladium fared considerably better, both continuing their recent up moves. Palladium has made a strong move higher over the past 7 weeks, rising from 589 to its present level of 702. The current level represents the highs of Q3 and is therefore likely to provide some resistance. However, if that resistance can be cleared look for a continuation higher to the highs of the year posed in February.
One commodity market that is trending very well and has done for several months is Coffee. Coffee, according to trend indicators has been in a long-term downtrend since the middle of 2011, and this week has fallen to its lowest level of the year. Due to the extent of the recent trend, we may see further weakness into January and the market may yet head down further towards 13500 and possibly as low as 13000.
With the exception of continuing its recent advance against the Yen, the dollar has declined across the board and the trend for the dollar is therefore very much down.
The dollar index, which is the best indicator of the general trend of the dollar since it is the dollar versus a basket of currencies, ended the week lower by 1.11%. This equated to the dollars lowest level in 8 weeks and keeps the trend for the index, and for the dollar overall, down. The next target will be support at 7900 and if that fails, the September low at 7872.
The past week has also seen quarterly forex expiration so the December contract has been rolled forward into March.
03 Dec 2012
Seasonally we’re in a strong period of year where risk-on is seen more often than not and we hear about the oft-mentioned Santa Claus rally. December is a strong month for stock indexes, and if we see that strength this year we can expect a weaker dollar and higher commodity prices. Since 1950, December has been the best performing month for the S&P 500.
The S&P 500 advanced 0.65% last week as the uptrend remains in place. This has kept the market above the 200 day moving average and we may yet see a continuation higher and possibly a test of the highs of the year before the trading year comes to a close.
The Nasdaq 100 made a stronger move to the upside, ending ahead by 1.65% for the week but still remains in a long-term downtrend due to the extent of the recent sell-off. The Dax may still be set to hit new highs for the year before the end of the year having gained over 400 points in the last two trading weeks alone. That momentum may be sufficient to carry the index above resistance.
It’s been a third week of advances for the Nikkei and we remain on track for our target at 9700. Further out we may see a continuation higher towards the highs of the year at 10200. As is shown on the weekly chart, there is little from a technical perspective to impede such an advance. From a long-term perspective, this week saw a 62% retracement of the steep decline from the end of March to the lows in June.
The commodities markets have seen a bit more action this week than the stock index and forex markets have, in particular Gold. Gold was the subject of a huge sell order of 7800 contracts on Wednesday, allegedly a tactical operation by a U.S. hedge fund with $14 billion under management, aimed at sending the market lower and triggering anticipated stops at $1730, in that hope that those stops would lead to a cascade of further selling, which was what happened.
Gold fell all the way to support before making a recovery late on Wednesday and a further advance back to $1730 on Thursday before the selling resumed on Friday. Key support is for now still holding and the trend remains up but there may well be further swings for gold, and indeed the other metals markets in the week ahead. Silver as usual followed gold’s movements closely, even though there were no such operations in the silver market.
Copper was this week the most bullish of the metals and managed a weekly advance of 3.14%, closely followed by Palladium, which also managed to move ahead by 2.85% in spite of also being subject to some mid-week selling, but later recovering to make new highs for the current move.
The forex markets have for the most part been fairly quiet, with many majors ending the week roughly where they began. This is perhaps best indicated by the dollar index, which ended lower by just 0.09% for the week.
The biggest moves as has been the case recently came from the Yen, which having gained some strength mid-week, was then subject to further weakness into the weekend. The trends are for the most part against the dollar and that may continue in the run up to the end of the year if we see the anticipated risk-on rallies elsewhere.
14 Oct 2012
October may yet prove to be the undoing of stocks as a double top has formed on the S&P 500, which has led to short term support being broken, culminating in a weekly loss for the index of 2.34%. Whether this ends up being the top for the year remains to be seen but we may see further downside this month. As I have written previously, October has had a tendency to be a jinx month, with multiple crashes being seen over the past 80 or so years.
Elsewhere has seen minimal activity in the currency markets, which for the most part consolidating at present. Commodities remain mixed but the trends are still mostly up for stocks and down for the dollar.
As mentioned above, the S&P 500 has confirmed a double top pattern by a breach of the intervening low between the two recent highs. Taking standard pattern measurements, this would project to a decline to around 1380 on the December contract, just below the next level of support, so that appears to be a realistic target for the next few weeks.
The Nasdaq 100 was weaker still, declining by 3.36% for the week and also taking out support. Having taken out the 50 day moving average, we may now see a continuation lower towards the 200 day MA.
The Dax continues to find support in the region of the 7200 area, which appears to be the key for this market. If 7200 does fail, a drop to 6900 may follow swiftly.
The VIX remains near its lowest level since 2007, indicating that complacency is still running high in the markets. Going on the basis that the crowd is usually wrong and that the VIX is a contra indicator, we may see a rise in the VIX and a decline in stocks in the not too distant future. Last week’s decline for stocks has so far had little impact on the VIX.
December Gold looks as though the $1800 level resistance has proven too much, at least for the near term and short-term support looks likely to be broken in the near term, suggesting an end to the uptrend for now. The long-term trend however is still very much up.
Crude had a strong move this past week, most of which came on Tuesday. The trend is still down. The trend for the other market in the sector is up, with Natural gas having reached a new 12 months high. Is this the start of a new bull market move for Natural gas? No leaded gas and heating oil both made new highs for the current move.
The dollar index advanced by 0.39% for the week but it has been an uneventful week for the currency markets, most of which are in sideways consolidations. The trend remains down for the dollar against virtually all of the majors but how long that continues to be the case for remains to be seen, especially if we have seen a top in stocks.
Stocks have continued to press higher with S&P 500 futures clearing the April high to hit a new high for the year. The Nasdaq 100 has moved to within touching distance of its April high and may break through this week. The dollar remains mixed with the dollar index advancing by just 0.04% this week. The index formed a doji on the weekly chart, which indicates indecision. Commodities also remain mixed.
As mentioned above, the S&P 500 did hit new highs for the year on the September futures contract, with the Nasdaq 100 only just behind and threatening to do the same this week.
The biggest advance of the week from the stock indexes came from the Nikkei 225, which advanced 3.25%, to reach a 15-week high. However, the long-term trend is still down for this index and further strength will be required before that changes.
The Dax advanced for a sixth straight week, adding another 1.21% weekly gain to the run. The long-term trend for the Dax is still down but that looks set to change soon and may do so this week.
Grains markets have been mixed but have on balance been lower. Wheat ended the week lower by 1.21% but had been much lower earlier. Wheat has since formed a hammer pattern on the weekly charts, which suggests the selling earlier this week may have been overdone and that the bull market may yet resume. Rough Rice ended the week lower by 3.29% but as with Wheat had been considerably lower mid-week before recovering about half of the week’s losses.
Gold is still in a long-term downtrend and ended this week down by 0.21%. As I wrote last week, a break above $1650 may lead to a test of the 200-day moving average and a possible continuation towards the $1700 level.
The energy markets continue to press higher with moves that are still counter to the long-term trend. Continued strength may lead to a change of trend for some of the sector in the not too distant future.
Coffee continued the long-term down trend, declining by 3.63% this week and continues to head for our target around the 15300 level on the December contract.
The dollar index ended the week virtually flat and is still clearly undecided on future direction. Support is still in place around 8200 and the long-term trend is still up. The dollar is in fact a mixed bag at present against most of the majors. However, the dollar is rising against the Yen having finally pushed up through resistance at the 200 day moving average. There is potentially plenty of upside in this move if resistance around 8050 can be cleared.
The Canadian dollar still leads the way and continues to push the US dollar down towards our target at the April lows.
The Euro is still being held down by the 50-day moving average and the long-term trend is still very much down and we still expect to see further weakness to take the Euro back down towards the recent 2 year lows.
|August MarketClub meetings : |
20th Aug – Cork
27th Aug Limerick.
Have a great week.
Best of luck with your trading
PJ Henry – StockActive Training Ltd
Stock markets in Asia are heading lower for the first time in the last three trading sessions as investor sentiment continues to show weakness after the disappointing outcome of last week’s European GDP releases. These declines in equity markets were not as bad as they could have been, however, as positive Retail Sales numbers out of the US helped to temper the market’s lack of optimism.
Trading volumes in stock market are holding at their lower Summer levels and as a result, most of the trading activity is being centered on individual stocks rather than on the broader indexes. Trading ranges in the Nikkei 225 are being limited to plus or minus 0.5 percent because of this and this is likely to continue until markets return to full strength. At the moment, trading volumes are seen at 10 percent lower than the monthly average, and this is another factor that is helping markets stall after last week’s negative data releases.
Looking at the broader trends, we can see that the recent moves have put the Asian Topix index at levels 14 percent below the yearly peak that was posted back in March. This puts the Topix company shares at a trading value equal to 0.9 times the average company book value, which is much less than the 2.2 multiple that is seen in the S&P 500 and the 1.4 multiple that is seen in the Euro Stoxx 600. This valuation is significant because numbers less than 1 suggest that a company’s stock can be purchased for less than the value of the company’s total assets.
Last week’s data showed that GDP growth in the Eurozone dropped by 0.2 percent relative to the first quarter in 2012, and the data set most of the tone in trading until the US Retail Report showed that strength in consumer spending rose by 0.8 percent. This is the first monthly increase in this gauge in 4 months, and was much stronger than the 0.3 percent rise that was the market’s consensus estimate.
Going forward, Asian markets will begin turning the focus toward corporate earnings releases, given that only 29 of the 1,672 companies that are listed in the Topix have reported earnings. Thus far, 52 percent of the companies that have reported earnings have fallen short of analyst estimates, with steel companies showing the biggest declines so far. Look for Asian stocks to weigh on global equity averages if these trends continue.
The GBP/USD is slowly grinding higher and is once again pressuring the major double top resistance that is seen at 1.5760. A break here should be particularly forceful, given the number of times the area has been tested. Adding to the significance of the level is the fact that this is also where the 100 day EMA comes into play, so expect some fireworks if this area gives way.
The S&P 500 is still caught in its 4H uptrend channel but we are coming into an inflection point as prices test the major psychological resistance at 1400. This is also a historical price area, so prices have been unable to overcome the region on the first test. Expect some follow through if this level goes but this will start to set up short entries as prices are getting expensive for the yearly averages.