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.

Stocks

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.

Commodities

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.

Currencies

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.

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.

Stocks

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.

Commodities

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.

Currencies

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.

The week ahead will be a shortened trading week as Monday is Labor Day in the U.S. so U.S. markets will be officially closed. Markets elsewhere will still be trading but it is generally a light volume day.

The long-term trends are up for U.S. equities, down for European and Asian indexes but still mixed for the dollar and commodities.

Stocks

The S&P 500 ended the week lower by 0.33% but had been lower than that until a decent recovery on Friday. The candle pattern was a piercing line, which bounced up nicely off short-term support and kept the trend running. However, we are now in to September, which is the weakest month of the year on an historical seasonal basis. The Nasdaq 100 ended marginally lower for the week but is still the strongest of the U.S. indexes.

The Dax has still been unable to confirm a change of trend and is coming close to resuming the downtrend. As with the S&P 500, Friday saw some decent buying from support, so the market is currently within a tight trading range between just below 6900 and 7100. The long-term trend is still down for now.

The Nikkei 225 was the weakest of the indexes and we may now see a continuation of longer-term weakness.

Commodities

Gold did manage to clear the highs of the prior week and has given a change of trend back to up with a test of $1700 likely very soon. Gold often does well this time of year and September begins a strong period for the yellow metal. Silver is also moving higher and as with gold, now looks set for a change of long-term trend to up.

Energy markets were also higher for the week and the long-term trends in this sector are now mixed. The strongest market in the sector continues to be no leaded gas.

Soybeans and Soybean Meal remain the strongest markets of all, both very much in bull markets. Both markets posted new all time highs again this past week and may yet continue higher. Oats also rose it its highest level in over a year and continues to trend higher. The weakest market of the sector is rough rice, which this week declined by 2.58%.

Currencies

The dollar index support levels that I mentioned last week did fail to hold and the market went below support and the 200-day moving average. We saw a small bounce towards the end of the week but the market closed just under the prior support level. Whether this now acts as resistance remains to be seen.

The dollar is therefore very mixed at the moment with the dollar still in a long-term uptrend against some of the majors but in a downtrend against some others.

Stocks pushed to new highs for the year early in the week but have corrected somewhat since. For now the uptrend remains intact. The dollar ended the week mostly lower and the trend for the dollar is still mixed. Dollar weakness has benefitted commodities, many of which have been higher this week. Metals in particular have had a good week.
The long-term trends are up for U.S. stocks but mixed for the dollar and commodities.

Stocks

The S&P 500 hit new highs since early 2008 but did pull back from those highs later in the week. Friday saw a bit of a recovery, which left the market closing back above the 1400 level. The trend still remains up but how much longer this continues to be the case for remains to be seen.

The Nasdaq 100 performed similarly to the S&P 500 having hit new 11-year highs on Tuesday, only to pull back later in the week. The trend is still up and the market still very bullish. The Nasdaq remains further above support than the S&P 500, suggesting that its uptrend may last a little longer.

The Dax came within a whisker of giving a change of long-term trend to up, but failed to complete the trend change. Support came in around 6900 but for now the trend is still down. The trend is also still down for the Nikkei 225, which this week reached its highest level since early May.

Commodities

The best trending markets are still coming from the grains sector, which has seen several huge moves this summer. Both Soybeans and Soybean Meal reached new all time highs this week. Other markets in the sector as also strong, especially Corn, with Oats and Wheat also in strong uptrends.

I wrote last week that a break above $1650 for Gold might lead to a test of the 200-day moving average and a possible continuation towards the $1700 level. Gold did indeed clear the 200-day MA and was looking good for a continuation higher towards $1700. Friday’s doji pattern suggests that the market may be pausing here but whether it continues higher remains to be seen. Often we see this type of chart action develop in to an evening star pattern, which is a bearish reversal pattern. For that pattern to complete we would need to see Monday’s candle be a long red candle that closed at least 50% in to Thursday’s tall green candle. Such a move would lead to a test of support at the 200 day MA. Alternatively, should the market close above the high of this forming pattern a move towards $1700 and a change of long-term trend to up will likely follow.

The energy market ended the week mixed but had been higher earlier in the week. The strongest of the sector is still No leaded gas, the only market in the sector where the long-term trend is up.

Coffee declined for a fifth straight week and still remains on course for our 15300 target on the December contract.

Currencies

The dollar index ended the week lower by 1.21% and briefly took out support at 8139 before bouncing exactly off the 200 day moving average on Thursday. Friday saw a continuation of strength and this pattern, known as a snap and crack suggests that the market was unable to hold below support and may now continue higher. The long-term trend is still up but this may change soon if the aforementioned support fails to hold.

The euro is coming back,over 1.2500.However the downtrend is still in play.

The EUR/USD pair broke through the 1.25 level on Wednesday after the Federal Reserve released minutes from the July meeting. This suggested that there were several people on the board that were willing to engage in monetary easing if the US economy doesn’t pickup, and as such the market sold off the US dollar.

However, we are currently at the top of the rising wedge we’ve been following, and there is a ton of resistance all the way to the 1.27 level. Certainly, over the last couple of sessions we have seen the Euro overbought, and as such we are looking for some type of weakness to sell. We haven’t got thet yet, but we think that it’s coming. With this in mind, we are looking for a sell signal on the smaller time frames that line up with our rising wedge.