The first full trading week of 2014 is over and it’s been a week that has seen stocks recover some of the losses from the prior week and the dollar move lower. Interest rate futures were sharply higher and commodities have seen mixed price action. The long-term trends for each of the sectors remain intact with the position at the start of the year being up for stocks, down to mixed for commodities and bonds, and mixed to down for the dollar. Going on the basis of the dollar index, which is a basket of currencies against the dollar but is heavily weighted towards the Euro, the trend for the dollar is in fact down.
The S&P 500 began the week with some weakness, but not sufficient weakness to break support, so the long-term uptrend remains in effect. The remaining 4 trading days of the week saw a steady climb back towards the all time high posted on the 31st December 2013 at 1846.5 basis the March S&P 500 e-mini contract. New all time highs look likely based more on the proximity of the market to the highs rather than the price action, which shows a series of small real bodies on the daily charts and not strong candles.
The Nikkei has been the weakest of the 4 stick indices we trade at LS Trader and may yet head lower towards the low 15,000 level. However, the long-term trend remains intact and it should only be a matter of weeks before we see the recent highs exceeded.
Commodity markets have seen an increase in volatility this week and some larger moves have been seen compared to recent weeks. For quite a long period of time, many commodities have been in consolidating patterns, especially when viewed on a weekly chart spanning around the last 5 years. Many of these patterns are wedge types and contracting triangle shapes that have had an ever-decreasing range. This has led to a drop in volatility and mostly trendless, directionless trading that keeps traversing from the upper to the lower boundary of the range.
This is one of the key reasons as to why trends have been lacking over the past couple of years in many commodity markets. Formations such as these do come to an end and are likely to do so this year, with the resultant breakouts likely to lead to some substantial moves in the direction of the breakout that could lead to moves that have the potential to run for a few years. When these breakouts do come, they will bring plenty of excellent opportunities for taking large profits out of the commodity markets.
With the exception of against the Canadian dollar, the U.S. dollar has been lower this week against all the majors. The dollar did rise sharply against the Canadian dollar, reaching its highest level on the basis of continuous futures contracts since Q3 2010. It has often been the case in the past that the Canadian dollar has made a key move ahead of other currencies, so if that turns out to be the case again this time we could be due a period of U.S. dollar strength. Such a move is not confirmed by other currencies, in particular the other commodity based currencies of New Zealand and Australia, both of which could break out of their respective ranges to the upside in the coming days.
The dollar index ended lower, closing right on the 50 day moving average, but still remains below the 200 day moving average. The trend is still down.
Interest rate futures
Interest rate futures had a bullish week with Friday being particularly strong as the non-farm payroll figure came in lower than analysts expected. These markets shot higher on Friday and the moves resulting in some bullish reversal patterns being printed on both the daily and weekly charts. The long-term trend remains down for the long bond and the 10-year T note, but is still up for the 5 year notes and short-term interest futures.