Another week, another all-time high in the stock market. ES has been up for 8 weeks in a row now. 7 of those 8 weeks closed at a new all-time high. Tech stocks are on a similar trajectory, with the last 6 weeks closing at all-time highs. Small caps are lagging. This first chart shows $IWM versus $SPY (as this chart moves lower, it indicates $IWM is falling relative to $SPY).
It seems like any economic data that comes out these days is automatically interpreted as bullish by the stock market. There was plenty to go around this week. Inflation data came in as expected, with PCE Core registering a 1.3% gain YoY. US Consumer Confidence surged to highs, coming in at 125.9, beating the 121 expectation. ISM Manufacturing was a miss on Wednesday. In the minutes prior to that reading, ES had put in what would be its high for the week (until today, when we tied it in the last 2 hours of trading). The FOMC also came out and kept rates on hold, as widely expected. Thursday, Trump named Powell as the new Fed Chair, and finally today, we had employment data and ISM Non-Manufacturing. Change in non-farm came in at 261k, and the unemployment rate dropped to 4.1%. ISM was a beat, coming in at 60.1. So overall, the data this week actually was quite positive.
To the right is a 30m ES chart. We came into the week right off of fresh all-time highs. Monday afternoon, we fell into a range and closed there. The overnight session saw a rally leading up into the US session where we continued to push higher. Wednesday we went straight up to a new high, then pulled back on the close. Thursday we tested lower twice. Should the market turn back, this would be an area to watch as potential support. There are a few lines drawn down there (2565-2566.76); I think the market is a little too random to label just one point as support or resistance. There are also 2 potential trendlines in play. A high-volume area worth keeping an eye on is between 2571.75 and 2573.25. That could act as a sticky area if we retrace back to it. The situation here seems pretty simple. We are at all-time highs and there is no reason to short. If we closed below Thursday's low (red line) I might start looking, but for now, the plan is to buy strength and buy pullbacks.
The bullishness in crude oil continued this week. We closed at the highest level since July of 2015. Looking at the weekly, there is some empty space above the market now. Back in 2015, we gapped lower from the rectangle and then had the big decline into the $20 handle. The specific rectangle/range I am talking about is circled. You can see that there is a gap from where we broke down. If we fill that, I think that we will test the upper end of that range ($62). I also think that it is possible that this current move higher turns out to be a fakeout, and we fall back and form a range between $51 and $55. However with 4 positive weeks in a row, I think the safer bet is to the upside. It is worth noting that hedgers are net short and small speculators are net long.
One market that I have found particularly interesting as of late is the yen. We have declined to a major support level that has been tested in the past, and now we are just hovering here (if you're looking at the spot pair, USD/JPY, the opposite applies). Big data from Japan on Monday failed to propel the market in either direction. Their policy rate remains negative. On the first chart below, the general area that is acting supportive is clear. It is roughly .8750 and was tested in April and July. The fact that we are spending much more time just above this level this time around tells me that the market is accepting this current price, so more testing to the downside is likely. .8690-.8715 will likely act as support should we break lower.
Zooming in a bit, let's look at how we have been testing this .8750 level. We came into the week at .8870 and steadily declined to .8770 following the BOJ announcement and outlook report. Thursday we retested this area, and rejected it quickly, shooting up to .8823. This same sort of rejection took place again today, when we quickly shot up to .8820 after failing to move lower. This second rejection was actually a result of the unemployment data, which caused initial dollar weakness. That was quickly reversed following the ISM data, and we got as low as .8752, which was the lowest level on the week. It seems like there is some perception of value down here, and like I said, I think further downside testing is very possible.
Corn has been EXTREMELY boring, but it might be gearing up for a move. On the daily, there is a pretty clear pennant forming. This kind of sideways behavior has been pretty typical of corn for the past year. Small speculators are net long and hedgers are net short. Could that mean a squeeze of the small specs is in order?
Looking a bit closer at corn, it is easy to see that the market is forming smaller and smaller ranges. Indeed, ATR confirms this. Being in the middle of the pennant like this doesn't provide any good risk/reward trading set-ups in my opinion. I think you need to wait and see if there is a decisive move in either direction, and go with it.
One last thing I find interesting is $ECYT. I don't really look at individual stocks, but this rallied hard at the beginning of October, topped out, fell back to support and held it, then began rallying again. There is a potential free-fall zone beneath the support level of 4.15. We tested this area between October 12th and October 17th, and then again on the 25th and 26th. This formation following the rally is starting to look like a W, so we will see if there is more upside to come.
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