Stock indexes have seen an increase in volatility, and we are seeing some daily price swings that are inconsistent with price action that has been seen in the last couple of years. This suggests that the personality of the stock markets is changing and that we are on the cusp of seeing a volatility explosion from the narrow trading range conditions that have dominated the markets recently.
This week will be a shortened trading week due to the US Independence Day holiday on the 4th July, which also sees markets closing early on Monday.
As mentioned above, there has been a shift in personality in the stock indexes this week, and this includes the S&P 500. Three well above average bars were printed in succession on the daily chart, the last of which penetrated the trend line that has been in place from the November 2016 low and the 50-day MA. However, both of these were reversed and held on a closing basis. We may see a further increase in volatility and further declines if both of these are decisively broken on a closing basis. However, with the long-term trends still being clearly up for global stock indexes, it’s still possible that last week’s dip was a bear trap. Time will tell.
From last week; “The Dax continues to undergo significant volatility compression, and support and the 50-day MA look likely to be tested soon.” The Dax broke support and closed below its 50-day MA for the first time since early December last year. Volume and volatility have both expanded along with the decline, which suggests further weakness ahead.
The Nikkei came within 5 points of its high from earlier in June but pulled back to support, and almost to its 50-day MA. The trend remains up for the Nikkei, which is holding up better than other indexes.
Commodities have had, on balance, a pretty bullish week. The grains markets, in particular, have seen considerable strength, as have the energy markets, which have reversed some of their recent declines.
Not all commodities have been bullish. The metals have seen mixed trading and some weakness in Gold, Palladium and Silver. Gold is now back below its 50 and 200-day MAs and is trading just above short-term support. Price is now below the third fan of a 3-fan principle set up which may lead to a decline all the way back to the ‘V’ bottom printed back in December, at $1133 basis the back-adjusted continuous contract, in other words, around $110 below current levels. Copper is the exception in the metals markets, making a 3-month high on Friday.
From last week on the Dollar Index: “The trend remains down for the Index, and the rally was unable to take the RSI anywhere near the 60 level. The RSI, therefore, remains in the bear range and we may see further weakness back towards last week’s low.” Weakness continued this week for the dollar, and the index fell to new lows for the move, down to its lowest level since October last year.
The Euro rallied to its highest level since August last year but is currently finding resistance at those levels as there are multiple resistance levels in the zone.
The British Pound has continued its recovery and has now rallied over 400 pips from the June 21st low, which keeps the long-term uptrend intact and has the Pound back to testing this year’s high.
Interest rate futures
Interest rate futures made new highs for the current move before reversing sharply. The 30-year T-Bond fell back exactly to its 50-day MA, and not far above its 200-day MA. Volume has also increased during the decline, but the long-term trend is still up for now.