The past week has seen stocks end the week slightly higher, but fail to reach new highs, and has also seen the dollar index move higher. Several commodity markets made decent moves and interest rate futures were, in most cases, sharply lower. The long-term trends remain unaffected so far, and are still up for stocks, mixed for commodities and currencies, but still up for interest rate futures.
All 4 stock indices that we trade at LS Trader ended the week higher, but none of them were able to exceed their local tops. Friday was triple witching, which saw stocks roll out of March and into June. The day saw the S&P 500 rally initially but then sell-off into the close to end down for the day. The rally did come within a few points of the market’s all time high, but failed to do so. However, it would be premature to say that we won’t see new all time highs soon due to the trend still being very much up and the proximity of the market to its highs.
The Dow, noticeably still the only one of the 3 main U.S. indices unable to clear its high from last year, printed a shooting star pattern on Friday, having once more come close to testing the high. Repeated failure here may lead to a steep sell-off, but conversely, should the market be able to break through resistance prior to selling off, a decent rally would likely be seen.
The Nikkei, currently the weakest of those we trade at LS Trader remains perilously poised above a key shelf of support, which if broken may lead to a sharp sell-off in a move that would also impact USD/JPY, due to the correlation between the index and the currency pair.
Following the break of key support during the prior week, the Dax made a snap and crack rally, regaining support and rallying higher in the process. This rally has so far retraced just over 50% of the decline from 9759, and may continue higher to the 9444 area, before moving lower once more. Following the prior week’s break of key support, the trend is now down.
In last week’s update we wrote about Lean Hogs, which is currently our biggest winning trade from our open positions. We wrote that the RSI had reached 89.38 “It is rare for the RSI to push much beyond 90, but it can and does happen.” Price action this week proved that as hogs rose another 637.5 points, and the RSI reached 90.32 at daily chart level. This market has now rallied just shy of 2000 points since the beginning of March and by all measures is due some form of correction. However, with the trend being as strong as it has been, it will take a large correction to put a dent in the trend. Therefore, although we may see a drop short-term, longer-term could still see considerably more rally over the coming weeks and months.
The dollar index held key support and the bullish divergence between the recent low and the low for the index posted in October remains intact. This, as we have mentioned previously, did not confirm the rally for the Euro (the dollar index and Euro are inversely correlated). We noted that this was potentially bullish for the dollar, and this week it was; however, not sufficient to change the trend in either the dollar index or the Euro. The dollar was an overall gainer against the major currencies this week, reflected by the rise in the dollar index.
Interest rate futures
Interest rate futures were lower across the board. The long-term trend for interest rate futures remains up but that could change soon if weakness continues. The shorter-term interest rate futures, such as 3 month Eurodollar and 5 year T notes both look as though they may test critical trend-defining support in the coming days. The long-term trend in both of these markets has been up for 5 months, so a change to down would represent quite a shift in recent market action.
The best performing market in the sector is still the long bond, which in spite of weakness this past week could still test critical resistance during the next week or so. So, for now the trend remains up for the sector until we get confirming price action to the contrary.