GOOD NEWS ON EMPLOYMENT CONTINUES GLOBAL MARKETS SURGE -- $SPX ONLY 1% AWAY FROM 2000 -- $INDU POWERS THROUGH 17000 -- $RUT REACHES TOP OF TRADING RANGE -- $USD CONTINUES SIDEWAYS RANGE
GOOD NEWS ON EMPLOYMENT CONTINUES GLOBAL MARKETS SURGE... The month of July has continued the positive push that June had going. With the big surge on July 1, the Wednesday market closed with a small consolidation candle. Today's shortened trading session pushed up to new highs on the back of the non farm payrolls report. In Chart 1 we can see that Employment Data ($$EMPLOY) in June closed above the previous high and this month the smooth trend continues with 288,000 jobs added.
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Chart 1
$SPX ONLY 1% AWAY FROM 2000... Chart 2 shows the S&P 500 ($SPX) putting in another solid gain as we head toward the three day weekend. While the MACD is gently trending sideways the US market keeps pushing towards the top right corner. We are now less than 1% from the 2000 level! Currently, the $SPX is 8.5% above the 200 DMA which is not an extreme distance but it is getting wide.
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Chart 2
$INDU POWERS THROUGH 17000... The Dow Jones Industrial Average ($INDU) pushed through June resistance today and passed above 17000 to close the week and start the month on a bullish tone. The Dow made a nice push as shown on Chart 3 on the short trading session to close the week at a new high and above round number resistance at 17068. Caterpillar has been the strongest chart (Chart 4) in the Dow since January 2014.CAT was featured in the February 6, 2014 Market Message for the strong SCTR ranking.
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Chart 3
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Chart 4
$RUT REACHES TOP OF TRADING RANGE... The Russell 2000 ($RUT) has been oscillating over the last 8 months and has now reached the top of the range last seen in March. While the bullish enthusiasm seems strong, this will be the first major test of the March highs. Earnings season starts next week, so the timing of testing the prior highs as we come into earnings season seems very important. Chart 5 shows the wide range for the Russell 2000.
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Chart 5
$USD CONTINUES SIDEWAYS RANGE... Looking at the US Dollar ($USD) this week, it has pushed to the centre of the range again. It is hard to pick a direction for the dollar as it has been in the 2.5 cent range marked in orange on Chart 6 for most of the last 3 years. However, recently almost all of the commodities have started to move higher with the exception of the soft commodities (Wheat, Corn). Lumber, Oil, Gold, Silver, Copper have been trending higher. On the Commodities Research Bureau Index ($CRB) charted below the $USD, we can see the $CRB has headed higher while the $USD moved sideways. Pressure seems to be building across the commodities space for a big move. Oil, Copper and Gold are all at critical resistance levels. Recently a positive correlation in the dollar and the $CRB has started showing up on the chart. Normally these are always opposite. Commodities are usually strong with a weak dollar, and weak with a strong dollar. A confluence of events appears to be lining up in the Commodities space. Many associated charts seem ready to break out of long term trends.
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Chart 6
$WTIC, GASOLINE AND DIESEL ARE APPROACHING RESISTANCE AND SUPPORT LINES. ... The liquid energy charts (Chart 7) are all approaching decision points on the weekly charts. West Texas Intermediate Crude ($WTIC) has been trending up since the 4th quarter of 2013. Gasoline ($GASO) has had the same trend characteristics. Heating Oil ($HOIL) or Diesel has been behaving differently. Heating oil is in a 2 year pennant pattern and if we exclude the 2012 lows, a three year pattern. If you were betting on trends continuing, then we should expect a breakout on the top two charts. This week all three pulled back, and usually crude energy related stocks are bullish starting next week. This should be a very critical chart over the next month.
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Chart 7
$COPPER, GOLD AND $LUMBER ALL TEST OR BREAK OUT THIS WEEK... Copper ($COPPER) had a big week on Chart 8. It soared up and almost broke out through the down sloping trend line. Rather than fuss over the placement of the line, it would be fair to say that what Copper does over the next few weeks is critical to confirming the up trend in the commodities $CRB index. Gold ($GOLD) and Lumber ($LUMBER) both broke up through their trend lines this week. $GOLD has been moving for a while now, and lumber surged during the seasonal lows of June / July. I have circled the last 4 years of lows. This looks timely for copper and lumber related plays.
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Chart 8
CANADA FINALLY JOINS USA AT NEW ALL TIME HIGHS THIS WEEK... The Canadian Stock Market ($TSX) had a weekly close in all time high territory for the first time since 2008 (Chart 9). This would seem to confirm the breakouts shown above in the commodities. With many of these charts making a seasonal low about now, the Canadian market seems ready to move in a powerful thrust if the $USD continues to weaken and commodities surge.
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Chart 9
$SSEC HAS COILED UP FOR A MAJOR BREAKOUT... The Shanghai Composite ($SSEC) has been a chart of frustration for almost 5 years. After peaking in July 2009, it continues to sit 40% off the rebound highs from the 2008 lows. I have highlighted a green triangle in the lower right corner of Chart 10. We can see the price coiling above the 2000 level, which was also initial resistance above the 2008 lows. If the commodities can all break out in July, I would expect the Shanghai Composite to push higher dramatically as the commodity weakness since 2011 has been duplicated on the Shanghai chart.
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Chart 10
Commodities all seem in phase to break out to the upside. They are also sitting at the same trend lines where previous resistance has stalled the advances before. Close scrutiny should be very valuable over the next few weeks. Commodities would love to start a long bullish run. We'll see if this is the turning point!
Enjoy the Independence Day Holiday and stay safe.
Good trading,
Greg Schnell, CMT
