Weekly Update 14 May 2017 – LS Trader

The French Presidential election resulted in the expected outcome, and the anticipated sharp increase in volatility in European markets did not materialise. Both the Dax and the Euro moved lower following the result, which would have been the opposite of most market participant’s expectations.

Several stock markets made new all-time highs, or new multi-year highs as the bull market in stocks continues, albeit on muted volume and volatility. The currency markets have been mixed, and multiple other markets have made short-term reversals to move to align with the major trends.

Stocks

The Nasdaq 100 made new all-time highs again this week and continues to grind higher. The S&P 500 made a new all-time high on Monday before drifting lower for most of the week and continues to lag the Nasdaq 100.

The Nikkei crossed above the 20,000 level for the first time since 2015 and remains in an uptrend. However, a shooting star pattern has printed on the weekly charts. This may lead to a test of the prior resistance level, which should now act as support if this breakout is to continue.

The FTSE 100 made a new all-time high on Friday and closed above prior resistance. Volatility is expanding nicely, and the RSI has reached a bullish 67.91. There could be further to go for the UK market which has lagged global stocks for years.

The Dax pulled back this week, which was a case of buy the rumour and sell the fact after the markets got the expected Macron win by a comfortable margin in the French Presidential election. When markets don’t rally on what is perceived by most as good news, there is generally something not right. With volatility at elevated levels, for the past week or so, further pullback to fair value, currently at 12534 may follow.

Commodities

The energy markets have continued a sharp pullback this week, which started on the 5th May but remain in a long-term downtrend. The market has retraced to the area of prior support, which should now provide resistance. For this interpretation to be correct, the market needs to turn lower from not far above current levels. If it does, the head and shoulders pattern suggests that there is approximately another $10 of decline in the Crude Oil market, down to the $38 region.

Currencies

The Dollar Index fell to a new low for the current move on Monday before reversing higher to Thursday’s high. A 3-4 bar evening reversal pattern formed on the index and if Friday’s low is taken out early next week, may result in a test of this week’s lows.

The Euro has, of course, been the inverse of the Dollar Index, and printed a bullish morning star pattern from just above support to keep the uptrend intact. The British Pound was also lower but is holding just above support.

The currency markets remain mixed, as they have for a couple of years. Much of this is due to the very tight range that the Euro has been in. In fact, the 2-year range has been the tightest 2-year range in the history of the market. When a solid breakout does occur, a huge move is going to follow. It’s just a matter of when. When this does occur, that breakout move will unlock the other currency markets and many other markets that are impacted by the currency markets.

Interest rate futures

Interest rate futures may have completed their correction in the new uptrend, and all markets have printed bullish reversals this week, led by the shorter term markets. The three-month Eurodollar and 5 Year T-Notes have been the strongest and are leading the rally. Depending on which market in the sector we are looking at, the retracement was about 50% of the advance from the March low.

Good trading

Phil Seaton

LS Trader

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