Market Week in Review, Sept 13 – 17

September options and futures expired rather quietly yesterday, bringing an end to what was on the whole a relatively quiet week in the US stock markets. The SPX gapped up slightly from the prior week on Monday, and spent the rest of the week trading in a narrow range, before finishing nearly flat on Friday on a pickup in volume. The close remained under the 1130 mark, so the index remains inside the summer trading range.

Thanks to the leadership of a few big tech stocks like Oracle and Amazon, which broke out to new high ground, that sector put in the best performance of the week. With the techs leading, the NASDAQ Composite was alone among the major indices in finishing above the trading range, though not by much as many of the stocks did not participate. Small caps in general were not looking bullish

Bonds of all types took a rest after three weeks of pulling back modestly from the summer stampede. It seems the bond bulls are exhausted, and most everyone who wanted to get in is in. That probably doesn’t bode well for bond prices going forward – where are the new buyers going to come from now?

There was more action in the currencies. The US Dollar is falling again, and with the 200 day MA just above 80, that looks like its near term destination. The euro is bouncing again in spite of what can only be seen as very troubling news out of the zone. The Yen, despite pulling back sharply after BOJ intervention (which hurt a lot of carry traders and other longs) remains in the three year uptrend.

Commodities continued the recent trend: agriculture and precious metals up, industrial metals flat, energy down. Oil remains in the lower half of that $70 – $80 range. Last week I said that gold looked like a short after failing at the top of its trading range. Obviously that was a bad call: the barbarous relic reached and held a new high, while its little brother silver is running with enthusiasm.

Looking ahead, what do I see here?

Stocks are poised at the top of the range, and we’re waiting for a breakout to give us a buy signal. Tech leadership is bullish, financials and small caps are not. I think they will bounce up and down inside the range a while longer, so short term trades can be put on, but we don’t have a good signal for long term trades yet.

Bonds have had a monster run up and pulled back. They can come back a lot more and still leave the uptrend intact. I don’t like them as a long  or a short at these levels. The Dollar looks like a short, but news out of the eurozone could change currency markets at any moment.

Oil remains in the range and to me the chart has a bearish bias. I am still expecting the next trade to be short when it breaks below $70. That’s another reason not to short bonds: with no energy price pressure, and no macro inflation, it’s hard to see any big threat to the bond market apart from supply and solvency issues. Gold, I must admit, looks short term bullish, but I don’t like trading it, and that’s that. The grains also are quite bullish but may correct before making new highs for this move.

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