The past week has seen stocks move lower, and the dollar move higher, but the big moves have come in interest rate futures and commodities. Interest rate futures opened the week lower and traded down to below their recent lows in both the 30 Year T-bond and the Long Gilt. Commodities markets have seen large rallies in the grains markets, which could be the start of a new leg up.
Overall, the price action in stocks and the dollar show that we are still in consolidations in these markets, but the moves seen in other markets suggest that the consolidating phase is nearing an end. Therefore, we can look for an increase in volatility and additional market breakouts over the coming weeks. This price action and current market conditions are very similar to what we saw last year before many markets broke out into a big trending phase for several months. In other words, be ready for some big market moves between now and the end of the year.
Stocks ended the week lower in a week that saw the Nasdaq 100 post a slight new high, but then turn lower. The S&P 500 failed to confirm the breakout and rolled over from just below resistance. This move keeps the S&P 500 below its trendline from the October lows, and the failed breakout for the S&P 500 suggests that the index may be poised for a move lower.
The Nasdaq 100’s brief new high means that we can redraw the trendline from the October low to the final low ahead of the high, which was the 15th June. The index remains above this new trendline, and we may see that trendline tested this week. For now the trends remain up in both U.S. indices.
The Dax ended the week higher but remains by far the closest index of the four we trade at LS Trader to a change of trend to down. The Dax broke its trendline back in April and has been heading lower since.
The Nikkei remains the strongest index of the four, this week reaching its highest level since April 2004 on the basis of the continuation chart. The monthly chart is so bullish that the RSI has risen to 81.69, which is the highest reading we have on our data, which stretches back to 1990 for this market.
There were some big moves in the commodities markets this week, and particularly in the grains sector, which led to a change of trend to up for wheat, the first market in the sector to complete a change of trend after a long bear market. Strength has also been seen in other markets in the sector and we may see additional grains markets complete trend changes in the coming days. The RSI has moved well into the bull range in soybeans, soybean meal, corn and wheat.
Palladium fell through the support zone around 690 that we mentioned in last week’s update and continues to make its way towards the next level of support at 640. Silver spiked lower during Friday’s trade but recovered some of the day’s losses by the end of the day. The breakdown in silver, which remains well below the trendline from the early December low, has yet to be confirmed by gold, which still narrowly remains in a long-term uptrend.
The dollar index continued higher from the hammer pattern that was printed during the prior week, which narrowly held key trend defining support. For now the trend for the dollar index is higher but another test of support may be due. The RSI remains in the bear range. Should support hold at the recent lows then the long-term trend for the index remains intact and we can continue to look for an additional rally back to the highs of the year over the coming weeks.
The New Zealand dollar dropped to a new 6-year low this week and may fall further to test the next level of support at 6700.
Interest rate futures
Interest rate futures opened the week lower and continued lower throughout the week. The 30 year T-bond dropped below its recent low to reach its lowest level since August last year. The 10 year T-note has also declined and may test support in the coming days.
The Long Gilt also dropped below its low that was posted earlier this month and reached its lowest level since November last year. For now the trends in the sector remain mixed, with the shorter-term interest rate markets still in a long-term uptrend.