New all time highs were seen this week in both the S&P 500 and the Dax, but the latter remains the stronger of the two. The dollar continues to consolidate but there have been gains in the dollar index and a test of the recent high may be at hand, as well as a test of the major recent lows in the Euro. Trading for the most part remains relatively quiet but there are signs that several moves are building up ahead of a breakout. Potentially large moves could lie ahead in various markets.
The long-term trends remain as they have for quite some time and are still up for stocks (the LS Trader system remains long all 4 stock indices that we trade) up for the dollar (we have very profitable open trades in the Euro and the dollar index), up for interest rate futures and down for commodities. The commodities markets are also currently providing a handful of excellent open trades to the short side, but there are signs that some commodities markets may be bottoming out and forming basing patterns ahead of potentially large bounces in the weeks and months ahead.
The Dax continues to be the strongest of the 4 stock indices that we trade at LS Trader and this week posted new all time highs and also made a new all time high close. The RSI is at a very bullish 76.86 and sentiment remains extremely elevated, at 95% bulls. Although such bullish extremes are often seen at or near the end of moves, sentiment was also at 95% a month ago, but the Dax has rallied an additional 600 points since then. Elevated sentiment in and of itself is not a reason to bail out of a strong trend.
The S&P 500 also printed new all time highs but no follow through has been seen and the market closed marginally lower for the week. We can look for the area around the late December 2014 highs to provide support, as prior resistance becomes support, but should that support fail to hold, lower prices may be ahead, but it would take significantly lower prices to put much of a dent in the long-term uptrend.
Last week we suggested that a test of the all time high at 4884 for the Nasdaq 100 was beginning to look like a real possibility, and that remains the case. Whether it happens in the current move remains to be seen. This week has seen new highs posted for the current move but also a loss of momentum. Whether there is enough left in this market for the remaining 400+ points required to complete the recovery from the March 2000 all time high remains to be seen, but for now the trend is unquestionably up and bullish.
During the past week we exited a very profitable short lean hogs trade that banked an excellent 2002 points profit in just under 3 months since our original entry on the 5th December. Hogs rallied sufficiently to break above resistance, but the long-term trend still remains bearish and the RSI is also in the bear range, so another move back to new lows cannot yet be ruled out.
Coffee is another excellent short trade and one that is still open. Here too we have over 2000 points profit on the open position as the coffee market has fallen to its lowest level in just over a year. Sentiment however is extremely bearish at just 3% bulls, which is the lowest level in 12 years. That does not guarantee a bounce but does suggest that the market is overextended in the short-term.
The dollar index broke out of the triangle and as we suggested last week, such a move would be bullish and would suggest that the rally was not complete and that new highs were ahead. The move has so far taken the index to within 50 pips of its January high and that level may be tested this week.
The Euro, which is a near-perfect inversion of the index declined this week and may also drop to new lows below its January low.
Interest rate futures
Interest rate futures rallied somewhat this week and corrected some of the recent decline, which in terms of the 30 year T bond was just over 50% of the decline from the January 30th high. The long-term trend is still up for the sector but as we covered last week, the RSI had moved down into the bear range. A decisive move back above 60 on the RSI would change that, but whether these markets can recover back to new highs remains to be seen.