Weekly Update – 26 January 2020 – LS Trader

Stocks

US stocks rallied to new all-time highs again this week but did see some weakness as the week progressed, which culminated in a bearish engulfing pattern on both the S&P 500 and Nasdaq 100 on Friday. That could lead to additional weakness in the coming days. For now, the markets are above support, and the trend is up.

Commodities

Palladium shrugged off the attempts to sell the market from the prior week. The heavy selling and low end closes gave the market every opportunity to sell-off, but it did not and rallied again to new all-time highs. Prices closed lower on both Thursday and Friday, so although the trend is unquestionably up, the risk of a correction remains and is increasingly probable. Volatility has risen to a level not seen since July 2019,

Currencies

EUR/USD broke to the downside this week as expected. This increases the chances that the high for January, and the year for the Euro is in at 1.1276 bases the March contract if the January effect is going to hold this year.

Interest rate futures

From last week: “Interest rate futures have moved mostly sideways for the past seven trading days and are undergoing volatility contraction, suggesting a breakout will follow. The long-term trend remains up for the sector, but as before, upside breakouts, as well as trend-defining support, are within range. Both levels happen to coincide with the right shoulder of a potential head and shoulders top, so the break of the neckline would be a downside breakout and change of trend to down. A break above the right shoulder would be a failure pattern and a resumption of the uptrend. This sector could break either way over the coming weeks, and the resultant moves could be sizeable.”

Interest rate futures made the breakout to the upside, meaning that the right shoulder of the head and shoulders top has been broken, so the head and shoulders is a failed pattern. It is also an upside breakout from a multi-month rectangle.

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