Monday is Presidents’ Day in the US, so it will be a shortened trading week for US markets.
Stocks continued their recovery that began during the previous week. Interest rate futures resumed their downtrend and commodities continue to gain traction to the upside.
Stocks continued the bounce that began on the prior Friday and, in the case of US markets crossed back above their 50-day moving average. However, it should be noted that on Friday a doji was printed on the S&P 500, which is an induction bar and indicates that the bounce has lost momentum. That may turn out to be a temporary pause as the market catches its breath from the rally, or it could be a turning point. At present, the long-term trend remains up, and US stocks are heading back towards their all-time highs.
The Dax has been the weakest of the four stock indices we trade at LS Trader and is the only one of the four to complete a change of trend to down. However, the Dax bounced as well and is heading back towards a test of its 200-day MA. It will take significant rally for the Dax to recover to new all-time highs as it is still some 1150 points below those levels. The bias in the Dax has turned to the short side.
From last week: “Soybean Meal has seen bullish price action and could complete a bullish trend change this week.” The grains markets have continued to see bullish price action and evidence continues to stack up that a long-term bottom could be in. Soybean Meal exploded to the upside, advancing some 8.58% this week. Soybeans also completed a change of trend to up, but Friday’s breakout was unable to hold above the prior resistance level.
Lumber printed new all-time highs having posted gains for the week of 5.33%. The negative here is that bullish sentiment is at a very high reading. However, we saw a similar reading back in October, and the rally has persisted since.
In spite of large commercial buying, Coffee remains in a long-term downtrend and after a 3.14% decline on Friday appears poised to breakdown to new lows.
From last week: “We could see breakouts this week against the dollar for the Japanese Yen and Swiss franc.” Both the Japanese Yen and the Swiss franc broke out as expected, and the dollar remains weak.
The Euro came within pips of a new breakout but reversed at prior resistance. Sentiment remains high, and commercials maintain a near-record net short position. Both of these are negatives for further advance. However, commercials may capitulate if a breakout to the upside is successful, such a move has been seen before in the Euro’s history.
The Dollar Index tested support and bounced but the long-term trend remains down, and we could see new lows again soon.
Interest rate futures
From last week: “The expected bounce did materialise, and although it was a large bounce, it did not damage the longer-term trend, which remains down. We could see this sector resume the downtrend as soon as this week.” Interest rate futures moved lower this week as expected, and the sector resumed the downtrend. Some strength was seen at the end of the week, particularly in the 30 Year T-Bond.