After another testy week for the global markets the major U.S. equity indices currently sit right at support around their 200-day moving averages. The NASDAQ pulled down by weakness in Apple and Google closed the week below its 200-day for the first time since last September. The S&P500 bounced off its 200-day on Thursday to close up on the week, though just barely, for the first time since the end of April. Bespoke has done some good work on the relevancy of the 200-day moving average.
The German DAX was the best performing equity index, up 1.33 percent for week, and, along with Mexico’s Bolsa, was the only major market to make a higher low and higher high from the previous week. Germany now seems to be the safe haven and destination of global equity flows. Conversely, the Hang Seng and Shanghai Composite have broken major weekly support as the credit driven asset bubbles in Asia begin burst and the Chinese economy slows.
This, coupled with the end of QE2, is also weighing on the commodity markets with CRB Index (see chart below) now flat for the year and sitting at a key support level. Energy was very weak, with crude down over 6 percent and natural gas 10 percent. Oddly copper rallied over 6 percent, recapturing both its 50-and 200-day moving averages. Monday’s close of $4.03 in cash copper is now a key level of support.
The next week could prove to be a volatile one. The Greek government faces a vote of confidence and the European Debt Crisis is far from over. Excluding the collapse of the Greek government, however, Euro vol is largely priced into equities and a nice little narrative for a short-term rally could develop if Asian markets stabilize, there is news of progress on a U.S. debt deal, and crude oil continues to sell off.
It’s tough to see a sustained rally with techs, financials, and energy selling off so we believe the NASDAQ is going to have lead the rebound. Lots of ifs in the wall of worry and may just be wishful thinking, but an oversold market pricing lots of perceived risk is the ingredients for a nice little short covering rally. And then QE2 goes into dry dock. Stay tuned!
(click here if charts are not observable)