We have begun work on the monthly Insights, so there will be no Short Term Review this week. In lieu of the STR, this blog will briefly cover the S&P. yields, the dollar index, and commodities.
Stocks: On Friday, the S&P 500 held support at 1081-1072, which represents a 38.2%-50% retrace of the rally from the November 2 low at 1029. As such, it was a normal pullback within the smallest wave degree. So, despite all the hype, Friday was something of a ho-hummer. That said, the market is not out of the woods. Both near and medium term momentum indicators are weak, sentiment remains excessively bullish, and important trend lines (relative to both price and momentum) have been violated. Lower lows, therefore, are likely in the weeks ahead. The “reason” will become apparent in due course – and it may not even be Dubai. Our primary focus for support is on 1029. A break of that level would confirm that the post-July rally is over. As for resistance, the index has not been able to decisively pierce the downtrend line from the 2007 high, nor did it seriously challenge the 1121-1156 range that we have regularly highlighted.
S&P 500 with Intermediate Momentum
Yields: Last week, 10-year yields came within a hair’s breadth of breaking to new post-August reaction lows. Even if new reaction lows are achieved, they would fit in with the comments expressed in our most recent STR. While there have been mixed signals, we pointed out that October’s rally proved to be corrective and, therefore, took place within the larger post-August downtrend. Fairly ample support exists down to 3.175%; a violation of that level would allow for further weakness toward 3.0% +/-. Although 3.55% area is still viewed as important resistance, a break of 3.175% would do much to lower initial resistance to something closer to 3.32%.
Commodities: The most important news of the week was the decisive breakdown by oil through both important chart support and an important uptrend line. Nonetheless, the equal-weighted Continuous Commodity Index has held up quite well. That said, intermediate momentum for the index is due to take on a bearish bias within the next 3-4 weeks (momentum for gold may hang in there for 4-7 weeks, while food may show some relative strength). Nearby support for the CCI is a 466-464, but it will probably take a violation of 452-448 to qualify as an important breakdown. Nearby resistance is indicated near 488 then 505-510.
US Dollar: The wait continues. Wave form, momentum, and sentiment all continue to suggest that an upside reversal is imminent. However, the post-March downtrend remains intact as the index continues to beat to its own drummer. In the absence of an upside reversal, we have had to respect the potential for a challenge of 74.30-73.90; that test was achieved last week with a move to 74.23. As for resistance, if our overall count is correct, the ultimate potential is for a rally to (or through) 88-89. Our more immediate focus is on 76.82 because a rally through that level would probably be enough to indicate that the tide has finally turned.
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