Weekly Update 26 Feb 17 – LS Trader

US stocks printed new all-time highs again this week before a slight pullback. Some commodity markets are showing signs of life, but the currency markets continue to consolidate. Interest rate futures are making a counter trend rally, which should terminate over the next few weeks and result in a resumption of the primary trend.

Stocks

The S&P 500 printed a new all-time high again on Thursday but ended the day lower. Further weakness was seen on Friday before a recovery late in the day, which saw the market close up for the eighth consecutive week. The weekly chart has volatility expanding nicely in the trending zone, but volatility has started to decline on the daily chart. This suggests possible weakness in the short-term but keeps the longer-term focus pointed higher. This week’s high RSI print at 80.45 is the highest RSI reading since November 2010; such has been the strength of the recent rally.

The Nasdaq 100 has seen almost identical price and volatility behaviour as the S&P 500. As before, volume in both indexes remains subdued.

Commodities

The energy markets remain within a tight range, with the exception of Natural Gas. The Crude oil market has stayed within a tight $2.50 box range since the first week of the year. This is a classic line market environment. A line market is where you can draw a horizontal line across the chart right through the price action, which effectively means the market has gone nowhere. When these markets do break out of this narrow, low volatility environment, the resulting move is likely to be big.

Gold printed its lowest volatility reading on Wednesday of this week since August last year and then turned higher with price on Thursday and Friday as the market moved decisively above its 200-day moving average. However, the long-term trend is still down.

Silver is still the stronger of the two precious metals and has been trading above its 200-day MA for most of February. Here volatility is much higher than Gold’s, but the advance is being supported by increasing volume. Four days this week have seen above average volume.

Currencies

The currency markets remain in a range bound, two-way rotational market environment. The long-term trend continues to favour the dollar, but short-term dollar weakness persists at this time.

The Australian dollar is one market that could potentially breakout against the dollar. The market is currently right near the top of a rectangle that has been in place for almost a year. So far, all attempts at resistance have resulted in a turn lower.

Interest rate futures

Interest rate futures have moved higher this week, but this is still viewed as a counter trend rally. The long bond remains below various resistance levels that we have mentioned in previous weeks.

The shorter-term 5 & 10 Year T-Notes are looking more bullish as both are just slightly above recent resistance and the RSI has just poked above the 60-level. There has also been a huge increase in volume, much of which is due to the quarterly roll from the expiring March contract to the June contract. There could still be further to run, but the long-term trend is still down for all markets in the sector.

Good trading

Phil Seaton

LS Trader

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