Both stocks and the dollar declined this week and critical levels look set to be tested in the coming days. Critical support tests are on the horizon for the dollar index and Nasdaq 100, and critical resistance for the Euro may also be tested. These levels collectively could have a key influence on the direction of several markets over the coming weeks, so market price action could really bet set to heat up soon.
For now the long term trends are mixed for stocks, currencies and commodities, but still up for interest rate futures.
The S&P 500 fell to its lowest close in 8 weeks and this led to a drop below key support at 1823.5 and the key 40 level on the RSI, meaning that for the short-term the trend has turned to down. The long-term trend remains up but for the first time in a long time a change of trend to down is potentially entering the picture. Considerable weakness will be required before that happens but it’s the first time that we have been able to talk about this in months.
Last week we wrote that the Nasdaq 100 had been making a series of lower lows and lower highs, which is technically a bear market set-up, and this continued this week. We also wrote that a move lower to 3405 looked increasingly likely based on the market’s structure and the declining RSI, which had entered bearish territory. 3405 looks set to be tested this week and the market’s reaction at that level may determine prices over the coming weeks. A fall and close below 3405 may see the index shed a further 100 points in fairly short order.
The Nikkei continues to be the weakest of the 4 indices we trade at LS Trader, and this week the Japanese index broke key support and fell to its lowest level since last September. Decisive follow through has yet to occur but that may follow.
Last week we wrote that Palladium “should be good for further strength through the 802.45 March 24 high”. Weakness was seen on Monday but another 4 day rally followed and a break above the March high was seen on Friday. Further rally towards 870, the August 2011 high may now follow.
We finally exited lean hogs, which was the biggest winning trade so far this year for the LS Trader system, making a total of 1987 spread betting points profit from the trade since we entered back on the 21st of February. This trade slightly exceeded profits banked earlier this year from oats and coffee, 2 other big winning trades so far this year.
Soybeans and soybean meal once again reached their highest levels since our data began for these markets, going back since 1968 basis the back-adjusted continuous contract. However, both pulled back during the last 2 days of the week but the trend is still up.
In recent weeks we have been writing about the 2 key levels in the forex markets, 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937. The dollar index basis June came within a couple of pips of that critical support level before moving slightly higher. This level will likely be tested again in the coming days, as may possibly the 13966 high in the Euro.
Interest rate futures
Interest rate futures rallied across the board, led higher by the long bond, which broke through key resistance as expected. This took the long bond to its highest level since June last year, took the RSI above 60 into bull market territory in the process and moves the target higher to the next level of technical resistance around 13650.