Weekly Update 24 April 2016 – LS Trader

The S&P 500 rose to a new high for the year, but as yet without follow through. The week has also seen quite a considerable recovery for the dollar against several of the major currencies, and has, for the most part, seen a continuation of the recovery from a deep bear market in several commodities, some of which completed a change of long-term trend to up this week.

This week ahead sees the two-day FOMC meeting begin on Tuesday.

Stocks

The S&P rallied to take out the high of the year and to complete a change of long-term trend back to up in the process. In terms of the back-adjusted continuous contract, last week’s high was a new all-time high for the index. The weekly RSI also rose to 60.15, which is the first time since 2014 that the weekly RSI has been above 60. However, that is not yet a decisive enough break of 60 to consider that weekly RSI has entered the bull range.

The S&P 500 is currently the only stock index of the four that we trade at LS Trader that is in a long-term uptrend. So far, we have seen the S&P 500 struggle to move clear of the highs and resistance has been seen, as expected. However, if we do get a decisive breakout, the market will again be at all time highs, which brings with it the likelihood of considerable short covering, which has the potential to carry the market higher.

The Nasdaq 100 has been considerably weaker than the S&P 500, and prices may test the 50-day moving average. From a classical technical analysis standpoint, the Nasdaq 100 could be setting up a broadening top formation, which has long-term bearish implications if the setup is completed. For now, the long-term trend remains down, and considerable rally will be required for that to change.

The Dax broke through the 200-day moving average and broke through resistance at 60 on the RSI for the first time since November last year. However, a change of long-term trend is a long way above current levels, and unless something extraordinary happens, that change will not be seen for the next couple of months, at least.

The Nikkei also called this week but remains in a long-term downtrend, below its 200-day moving average and still below 60 on the RSI.

Commodities

Silver put in a huge upside move this week following the recent breakout from a 16-month wedge and the neckline of an inverted head and shoulders pattern that we wrote about last week. As before, these patterns give a longer-term target of around 1850 but expect wild swings along the way. Volatility is extremely high in Silver.

The grains markets have also seen some significant moves and usually high volatility this week. Soybean Meal ended the week higher by 5.39% in spite of giving back around half of its gains. A similar, but smaller move was seen in Soybeans. The long-term trend is now up for all three Soybean markets. Corn also completed a change of trend to up this week but ended the week lower after a sharp reversal on Thursday.

Currencies

It’s been an excellent week for the dollar, which has seen strength against nearly all the major currencies. However, in spite of recent strength, the long-term trend for the dollar remains down against all the majors. The best measure of overall dollar strength is the dollar index, which continues to be very much in a long-term downtrend, well below its 200-day moving average, and with the RSI still below 60, where it has been since December. If the RSI moves decisively above 60 on the index, then we may be due a period of sustained dollar strength.

We wrote last week about the possible head and shoulders bottom that was setting up on the British Pound. The neckline of that pattern was broken this week, which suggests further strength, possibly up to around the $1.50 level. However, as we wrote last week, the long-term trend is still down.

Interest rate futures

Interest rate futures have been weak this week, trading lower for five consecutive days and falling below the 50-day moving average. Prices are still well above the 200-day moving averages, and the long-term trend is still up. However, bull market support at 40 is going to be tested this week, and if this level is broken, further weakness may lie ahead.

Good trading

Phil Seaton

LS Trader

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