Stock indexes have seen mixed but volatile trade this week, but continue to display short-term weakness against the long-term uptrend which remains intact for now. The dollar has seen a bounce over the past two weeks, but that may have run its course. Price action in Gold has been very interesting and will be one to watch this week, as discussed below.
Stocks have had a volatile week. Having found support at the prior week’s lows, the S&P 500 rallied through to Wednesday’s high before turning lower again, moving back below the 50-day moving average and the previous week’s low. This has seen the RSI drop below the 40 level, which is bull market support, and the uptrend is now under pressure.
The Nasdaq 100 has seen similar price action but held above the prior week’s low, and the RSI also held bull market support at 40, meaning that, for now, the Nasdaq is slightly healthier. However, a breach of 5761 would likely lead to a break of 40 on the RSI and may lead to further weakness back to medium-term support at 5560.
The Dax managed to hang on to support and quickly got back above its 200-day MA, almost reaching the 50-day MA before turning lower again. This index continues to look weak and is likely to be the first index to complete a change of long-term trend to down.
Gold rallied to resistance to the tick, basis the back-adjusted continuous contract, matching the 1306.90 high that was printed on the 17th April. On the non-back-adjusted contract, Friday’s high exceeded the June and April highs mentioned last week on an intraday basis, but then quickly reversed, forming a falling off the roof pattern with a shooting star on the daily chart. This is ugly price action in the short-term and suggests that the market may move lower again next week. However, if Friday’s high can be taken out, that would be a bullish breakout to the upside. Therefore, Gold is at a key inflection point and price action early this week should be telling.
Copper and Palladium continue to lead the way higher for the metals. Copper cleared the 295.50 resistance level mentioned last week, printing a new high for the move at 298.25, before falling back and closing below prior resistance. However, price action still looks bullish, and the RSI remains above the 60 level.
Palladium made new highs again for the current move and took out the 913 resistance level to reach its highest level since March 2001. As we wrote last week, we now could see further rally towards all-time highs (1090) later this year.
The dollar pushed higher against most of the majors this week, bringing the last two remaining currency trades we had open to an end. This resulted in the LS Trader system banking 696 pips profit from our long EUR/USD trade, where we had been long since 25th April. This was the second most profitable trade of the year to date. We also banked 211 pips profit from our short Dollar Index trade, where we had been short since the 28th June.
This counter-trend dollar rally now has us flat the currency markets, but that may not remain the case for long as several currencies are within range of breaking out again. Of particular interest is the Japanese Yen, where a range has been in place for all of 2017 to date. A successful breakout to the upside (Yen strength/dollar weakness) could be worth around 500 pips and could see the Yen head up towards parity against the dollar over the coming months.
Interest rate futures
Interest rate futures are gradually grinding higher. The 30 Year T-Bond continues to find resistance right at the 60-level on the RSI and therefore remains in the bear range. A decisive breakout above 60 would likely lead to a test of the June high and a possible breakout.
The shorter end of the yield curve has seen similar price action but is slightly more bullish, and a breakout could be seen this week, especially if stock market weakness persists. The long-term trend remains up for the sector.