Weekly Update 16 April 17 – LS Trader

The last week was a shortened trading week with the markets closed on Friday. Monday is a Bank Holiday in the UK, but most global markets will be open as normal.

Many markets appear to be on the verge of some large moves. Although we have yet to see any sustained trends, which have been sorely lacking so far this year, there are multiple markets that are positioned quite nicely for some extended trends.

Stocks

The S&P 500 closed below its 50-day moving average for the first time since November last year. The RSI also fell into the bear range, also for the first time since November. These both indicate further short-term weakness ahead, particularly if the swing low at 2317.5 is taken out on a closing basis.

The Nasdaq 100 broke short-term support but remains above its 50-day MA and also above its March lows. As with the S&P 500, if the March lows are broken, further weakness could be seen. For now, the Nasdaq’s RSI remains above bull market support, which Friday’s print at 43.43. A decisive move below 40 would also indicate further weakness.

The Nikkei is even weaker and broke medium-term support this week. The Nikkei could now be heading for a trend change to down. A test of the 200-day MA, currently at 18325 should be tested this week. The RSI has already moved deeply into the bear range, printing 27.79 on Friday, its lowest level since February 2016.

The Dax is the strongest of the four indexes in the short-term and is currently holding just above support. However, support could be tested this week.

For now, the long-term trend is up for all four indexes. Only the Nikkei has a change of trend to down within range. It will take considerable weakness for a change of trend for the US markets.

Commodities

Gold and Silver broke resistance and both confirmed changes of long-term trend to up in the process. Gold reached its highest level since November and appears to have stabilised above both its 50 and 200-day MAs. The RSI is bullish any 72.22, well into the bull range. Volatility is expanding along with price, as is momentum. All of these are supportive of further advance. The two slight negatives are the doji, an indecision bar, printed on Friday, and the fact that volume is not increasing. Silver, which also broke above resistance this week, has also printed a doji on Friday and closed just a touch back below prior resistance. We’d like to see a decisive close back above last week’s highs, ideally on increasing volume to indicate that this trend has legs.

Currencies

The US dollar index fell back below its 50-day MA but remains above its 200-day MA and trend-defining support. The dollar remains in a long-term uptrend across the board.

However, weakness in the dollar has been seen against the Yen, where the dollar has fallen to its lowest level since November. This week saw price close below its 200-day MA of the first time in five months and has also seen the RSI fall to 30.09, well into the bear range. This is the lowest RSI reading since June last year. A change of long-term trend to down could be completed this week.

The Euro continues to trade below its 50-day MA as it has since the end of last month, but remains in the middle of the trading range that has been in place since December.

The British Pound has edged up towards the higher end of the box range that has been in pace since October but remains in a long-term downtrend.

Interest rate futures

Interest rate futures continued their recent good run and made multi-month highs in the process. The long-term trend is now up for the 30 Year T-Bond, 10 Year T-Note and UK Long Gilt. Both the 5 Year T-Note and 3 Month Eurodollar (March 18 contract) could complete a change of trend to up this week.

As we have written recently, speculators have a near record short position in interest rate futures, which leaves these markets prone to a short squeeze, forced short covering and further rally. This continues to suggest that interest rates will fall, not rise, which is the opposite of the currently popular view. Let’s see what unfolds.

Good trading

Phil Seaton

LS Trader

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