The past few days have seen some of the most volatile trading conditions in recent times. These moves have continued on from the volatility that began during the previous week, and has resulted in the stock indices breaking major support levels and confirming a change of long-term trend to down for the first time since 2014.
The long-term trends based on LS Trader’s proprietary algorithm are now down for stocks and commodities, mixed for interest rate futures and up for the dollar.
From last week: “The long-term trend is currently up, but a breakout from this box range could lead to a substantial move in the direction of the breakout. This range-bound trading has continued for longer than normal, and a decisive breakout is long overdue.” A decisive breakout is exactly what we got, and this large move confirmed a change of trend to down for the S&P 500. The RSI also dropped easily through the 40 bull market support level, ending the week at 26.02, firmly in the bear range.
In just three days the S&P 500 fell from its high of 2103.75 to its low on Friday at 1967.25, a staggering decline of 136.5 points. A move of that magnitude has not been seen since 2008. It’s fair to say that the long-term trendline from the October low is well and truly broken and is now no longer valid. It’s worth noting that this week saw a trendline break on the weekly chart that has supported prices since October 2011. The long-term trend is now down.
The Nasdaq 100 made a similar move, also breaking its equivalent trendline and falling through the 40 level on the RSI, confirming a change of long-term trend to down in the process.
The Dax broke down through major support one day ahead of its U.S. counterparts, falling from its high of the week at 11114 on Monday, to its low on Friday at 9980, for a 1134-point drop in just one week. The Dax, therefore, confirmed a change of trend to down one day ahead of the U.S. indices. Of the four indices that we trade at LS Trader, only the Nikkei remains in a long-term uptrend, and that could change soon if weakness continues.
Gold may be off to the races based on its advance this week and the fact that the RSI broke above the 60 bear market resistance level on the RSI. This is the first time the RSI has cleared the 60 level decisively since February when gold was more than $110 higher than today’s prices. Further strength looks likely, and a possible change of trend to up may follow in the coming days.
The energy markets continue to take a battering as Crude Oil and Brent Crude both fell to new multi-year lows. Heating oil and No Leaded gas have also seen weakness and both look to be heading down towards their respective January lows.
The dollar has seen weakness this week against most of the majors. This weakness led to us exiting USD/CHF, and a very profitable short NZD/USD trade, where we banked 424 pips profit in just a week less than three months in the trade.
The Euro has risen sharply this week against the dollar and may continue higher to test trend defining resistance at the May high. Should this high be broken, the Euro may continue higher and possibly as high as the $1.2200 area over the coming months.
Weakness in the dollar index has continued, and we could be seeing a move lower to test major trend-defining support over the coming week or so. The RSI has already dropped through bull market support at 40, which suggests further weakness lies ahead.
Interest rate futures
Interest rate futures were higher this week. As before, the leading markets in this sector are the shorter-term markets such as the 3 Month Eurodollar and the 5 Year T-Note, both of which rallied to new highs this week. The long-term trend for both of these markets remains up.
The long-term trend for the longer-term interest rate futures, such as the 30 Year T-Bond, 10 Year T-Note and Long Gilts are all still down, but strength continues to be seen in the short-term. Whether we see sufficient strength for a change of trend in any of these markets over the coming weeks remains to be seen.