The short Holiday week did not lack action, and though it wasn’t a wide weekly spread in the SPX from Tuesday’s open to Friday’s close, the day to day directional changes were severe. The mid-week bounce (short covering?), which briefly regained the 200 day SMA, gave way to a Friday slide that started soon after the open and fell through the day with nary an uptick. Breadth was extremely negative, and the Dow closed below the symbolic 10,000 level.
Given such action in stocks, it wasn’t surprising that Treasuries and the Dollar continued to rally, with the yield on the 10-year note approaching levels of late 2008, and the Dollar index also in the vicinity of its high of the financial crisis. Meanwhile, the Euro broke though the $1.20 level, continuing its waterfall drop. Overseas markets were mostly uninspiring, Korea being the the best of the bunch; closer to home, Canadian stocks continue to show relative strength. The BRIC countries are well off their highs, but appear to be finding some support at these levels.
Commodities remained near the low end of a trading range, with oil holding above $70, and even gold moving very little on the week. Once again, natural gas was the standout, posting a second week of price gains, with the futures up more than 10%. This is set up for a long trade – but it’s not a long term holding. Trade with caution! On the other side, base or industrial metals are dropping sharply, and taking the stocks of materials companies along for the ride.
Looking forward, the SPX remains above its February low, and the slope of the 200 day SMA has not turned down, so there is still a possibility that the market will build a base and offer us an opportunity to go long the index. It’s still too early to tell. On the long side, shares of Sprint (ticker: S) remain in a an uptrend after the late April bullish moving average cross, and the 200 day has just started to turn up. Unless the markets just fall apart, this looks like a winner from a technical perspective. For the less risk averse, there is the natural gas ETF (ticker: UNG), which looks like it has put in a recent triple bottom, and advanced on strong volume.