Stocks began the week with strength but then reversed sharply lower, before finding support at the end of the week. The long-term trends still remain up for stocks, as they also do for the dollar and interest rate futures. However, the latter two sectors have both been under some pressure this week, and a change of trend to down is coming within range for some markets within each sector. At the same time, commodities remain mixed, but there are signs of strength in certain commodity markets, particularly the energies, which remain in the early stages of a recovery from an extended bear market.
Both the S&P 500 and the Nasdaq 100 printed new highs for the current move on Monday. In the case of the S&P 500, that was yet another all-time high. For the Nasdaq 100, the high was a new high since 2000. However, both markets sold-off sharply following their highs, but both found support, which keeps the long-term uptrends intact. It can often be observed in financial markets that following three failed breakouts, which is what we now have in U.S. stocks, that the fourth breakout to new highs is successful. Therefore, although we are now in a period of seasonal weakness, further rallies in stocks can in no way be ruled out.
The Nikkei was also weak and fell below short-term support, before recovering slightly on Friday. The RSI held just above the 40 level, which is bull market support, at 42.95. The German Dax has been weaker still, and this week dropped to its lowest level in two months. The RSI here is right on bull market support, closing the week at 40.01.
All four of these stock indexes that we trade at LS Trader remain in long-term uptrends, and all remain in the bull range on the RSI, albeit only just in the case of the Dax and the Nikkei. It will take decent moves in price to the downside for any of these markets to trigger a long-term change of trend to down. A decisive move below 40 on the RSI would indicate further weakness ahead, at least in the near-term.
The energy markets continue to advance. Heating oil completed a change of trend to up for the first time since July last year, as we expected would happen. No leaded gas will likely follow this week. Only a move above Friday’s high is required for a change of trend confirmation. Brent crude is also gaining strength and may also complete a trend change. However, further strength will be required. Light crude remains some way off the pace. All four of these markets have now seen the RSI cross above 60 and move into the bull range, so further strength is indicated.
Gold and silver both remain volatile in the near term as they continue to trade within a wider trading range. The price action suggests that the eventual breakout may lead to substantial moves. As yet, it’s unclear as to whether those breakouts will be to the up or downside.
The dollar index dropped through the first support level and continued lower to see the RSI break down through RSI bull market support at 40. This is the first time the RSI has been below 40 and in the bear range since the first week of July last year. A change of trend to down is still some way off, due to the extent of the recent bull move, which was the second largest in the history of the dollar index. Other currencies have gained against the dollar sufficiently to bring a change of trend into range. Whether the dollar weakens sufficiently for any changes of trend to be completed remains to be seen.
Interest rate futures
The 30-year T-bond sold-off sharply this week and fell below support. The RSI also dropped through bull market support, ending the week at 31.82. This suggests further weakness ahead in this market and a possible test of trend defining support, currently around 155.
Even the strongest markets in the sector, namely the 5-year T-note and 3 month Eurodollar have seen weakness this week, the latter of which is just holding above support. The long-term trend remains up for the entire sector at present, but the 30-year bond could well change that in the coming days.