Stocks rallied to new all-time highs on Thursday, before closing the day lower and lower again on Friday. From a technical perspective, the long-term trends are unquestionably up. However, momentum divergence is evident, and there is also some volatility compression.
Added to this, we are possibly at or near to a sentiment extreme. This is evident by the cover of The Economist this week, which has a picture of stampeding robotic bulls for tech stocks. Therefore, we are possibly near the end of the trend and will likely see support tested this week. However, blow-off rallies are often seen at the end of such moves, so a sharp short-term rally can also not be ruled out. As ever, price action is king, and we wait to see what unfolds.
From last week: “Gold continues to hold above support around 1550 and remains in a long-term uptrend, with further strength looking likely. A test of 1600 may be seen this week.” Gold exploded from the open and closed higher each day this week, making a new high for the year
Also from last week: “Palladium could be forming a continuation flag pattern, which, if completed, would suggest significant further upside. Volatility peaked on the day of the high and has since been under sharp compression implying that there is plenty of room for additional rally.” Palladium exploded out of the flag and hit a new all-time high at 2751.90. Silver continues to lag but may breakout this week.
The dollar showed additional strength this week until Friday. A shooting star pattern printed on the weekly Dollar Index chart, with weakness also evident on Friday’s candle. Naturally, the Euro printed almost the perfect inverse, with a bullish engulfing pattern on Friday.
Interest rate futures
Interest rate futures have also seen continued strength, with rallied back to new highs for the current move being seen in the 3 Month Eurodollar, 10 Year Notes and 30 Year Bonds. The 5 Year Notes may breakout this week.