Monday is Labour Day in the US so most markets will be closed, leading to a shortened trading week. Volume and volatility should return to the markets from Tuesday as traders and fund managers return to their trading desks following the summer break. Typically, the next 3-4 months are the best trading months of the year.
The S&P 500 dropped to its lowest level since early August on Thursday but had recovered the week’s declines by Friday’s close and remains close to breaking out to a new all-time high. There has been an increase in volume over the past three days, and that may start to increase further over the next few weeks. Rather amazingly, the entire trading range for a month and a half has been contained within 50 S&P points. That’s not something that will continue for long and a volatility breakout beckons.
The position in the Nasdaq 100 is almost identical, although the Nasdaq remains further above its 50-day moving average, and the RSI remains above 60, making the tech index slightly stronger by these technical measures.
The Dax has recovered sufficiently to suggest that it will test its August high this week. The long-term trend remains up here as well, and a move above 60 on the RSI would likely lead to bullish price action and a break of resistance.
Even the Nikkei, which is the only one of the four stock indexes that we trade at LS Trader still in a long-term downtrend, has been displaying strength, this week closing above its 200-day moving average for the first time since April. The RSI has moved decisively above 60 this week, indicating further strength ahead.
It should be noted that September is the weakest month of the year for stocks based on historical data going back to 1950. That does not mean that this month will be a down month for stocks, only that there has been a historical tendency for weakness during September on average.
The energy markets continued with weakness that began during the previous week and have all moved back below their long-term moving averages with the exception of Natural Gas, which is by far the strongest market in the sector.
Copper came close to a downside breakout and may resume the long-term downtrend this week. The other metals remain in long-term uptrends in spite of recent weakness.
The overall bias for commodity markets remains to the downside with the vast majority still in long-term downtrends.
The currency markets continue with their long consolidation phase, which is amply highlighted by the dollar index trading sideways around a flat 200-day moving average. It’s a similar story in the Euro, and most currency markets remain rangebound. Patience is still required in the currency markets with the knowledge that once we do get a decisive breakout from this seemingly endless consolidation, either up or down, the resultant breakout should be massive.
Interest rate futures
Interest rate futures are also in a consolidation phase which has been in place for the past couple of months. Most markets in this sector are trading sideways in proximity to their respective 50-day moving averages, with the RSI also hovering around 50, indicating no trend. The long-term trend in the sector is still up with the exception of the 3-month Eurodollar, which remains below its 200-day moving average.