Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Biweekly Review / Preview:Key Market Drivers Prior, Coming Weeks




 

Here’s a very quick recap of the key events and likely market movers of the prior and coming 2 weeks. For full details see:

The Week Ahead: Stocks, Commodities, Forex Key 5 Market Drivers August 23rd – 27th and August 23rd – 27th Quick Review/Preview: Stocks, Commodities, Forex

Stocks: Normal Correction Or Next Leg Down?

The bellwether S&P 500’s technical breakdown continues, as the 200 day SMA (purple line) and 1100 resistance holds firm. Graham Summers has a good article here on how this indicates the market may have run out of buyers, meaning more downside ahead.

 

S&P 500 DAILY CHART COURTESY AVAFX MT4    13AUG23OFC

-Its downtrend picks up momentum, records its second pair of lower highs and lower lows in the past 2 weeks, 20 day SMA (yellow line descending line) crosses below its 50 day SMA (red descending line).

-The August drop confirms 3 bearish chart patterns:

--the long term downtrend that began in October 2007

--the bearish Head-and-Shoulders pattern that began in January 2010 [note the horizontal red line marks the approximate level of the 2 ‘shoulders’ of January 2010]

--the bearish Double-Top that from June 2010 [the horizontal red line also indicates the level of the 2 tops]

The big fundamental drivers reflected in this  world-wide breakdown in risk assets: deteriorating US jobs, housing, spending (the pillars of US GDP) and the expected slowing in the EU, UK, Japan, and China.

The biggest danger is that another global slowdown will doom EU austerity plans, bring the EU sovereign debt/banking crisis back to full fury and threaten international banking, another market collapse, and test of 2009 lows.

US Bonds: Continuing Rise

This suggests rising fear and thus more downside coming for equities, as bond markets tend to lead stocks.

Commodities: Energy Down, Gold Up, Softs UpOil

Crude prices, which typically track stocks and often exaggerate their movements,  deteriorated badly, as WTI falls nearly 3% as global demand was revised lower and US inventories  reached record levels of refined products.

Crude prices failed hold above key support of $75 after on deteriorating US jobs EU growth picture

Gold

Up for a third straight week on concern about the Euro, fueled by new Irish bank bailouts and a report that Greek austerity is crippling growth to the extent that further aid may be in jeopardy because Greece may fail to meet certain debt/GDP criteria.  

Settling at 1228.8, about 3% from its all time high, appears on track to test its record high of 1266.5.

Holiday buying in India may add demand.

Softs

Agricultural commodities remain in an overall steady uptrend on a weekly basis

Forex

Clear bias over the past weeks to the safe haven JPY, CHF, and USD, in that order, as poor US economic fundamentals and new stimulus keep the USD the least preferred of the safe havens. The EUR is resuming its downtrend that began in December 2009.

Potential Market Movers To Watch For The Coming Weeks 

The Most Important Calendar Events Include:

  • A wave of revised Q2 GDP figures from the US, Germany, and UK. If the German report undermines expectations of continued robust German growth, an already nervous mark, the EU sovereign debt and banking crisis could return to spring panic levels.

 

That remains the prime danger - another global slowdown that dooms EU austerity plans to failure, brings spiking borrowing costs and risk of imminent default by one or more nations, and threatens international banking liquidity and another market collapse.

  • Watch PIIGS nations’ sovereign CDS spreads. If they begin to ease the EUR/USD could attempt a bounce to around 1.3000.  If they continue widening, then we’re approaching another bout of EU crisis and lots more downside ahead.  

 

  • Big US bond auction of $109 billion supply of coupon-bearing debt also worth watching, though more as a sign of how strong risk aversion has become rather than for signs of lack of demand (despite China’s supposed heightened interest in EU bonds).

 

  • Other Key Events: The week of August 29th – September 3rd is the typical packed monthly US jobs reports week. Chicago PMI will clarify if US manufacturing is really slowing, as was suggested by the recent Philly Fed report.  A rising trend of weekly first time claims suggests another dour jobs report

 

  • Continued ECRI Weekly Leading Index below -10 will suggest a double dip recession coming

 

 Wildcards To Watch For- Likely Sources of Surprises

  • Poor EU sovereign bond auctions or signs of trouble with interbank lending
  • Disappointing China data 

 

Disclosure: No Positions