This past week has seen a mixture of decent moves and some highly volatile trading, particularly on Thursday, following the ECB announcement. The markets have since retraced some of those moves, which is particularly the case in the stock markets, and the long-term trends have not been affected. It’s likely that several of the affected markets will completely retrace Thursday’s moves over the coming weeks.
The Nasdaq 100 rallied to new highs on Wednesday but then reversed lower in volatile trading. The move to the downside was clearly a knee-jerk reaction, and it was reversed again on Friday and the market recovered back to within touching distance of Wednesday’s multi-year high. It is likely that we will see the tech index rally to new highs this week. It’s worth noting that the Nasdaq 100 is very much within range of rallying to its all-time high print of 4884 back in March 2000.
The S&P 500 once again fell short of new all-time highs and reversed lower. Interestingly, the RSI held firm at 60, and the market was unable to break through. Following almost identical price action to the Nasdaq 100 (save for reaching new highs) the S&P recovered well on Friday. We will likely see major resistance tested this week, both in terms of price and RSI. A breakout would be bullish and would open the way for a year-end rally to new all-time highs.
As has been the case for the past few months, both the Dax and Nikkei continue to lag the U.S. market, and both remain some distance below their highs for the year. The trend for these two indexes is still down and considerable rally over the coming weeks will be required for that to change.
In spite of the volatility seen in several markets, the energy markets continued their bear trend. Both Brent and Light Crude Oil fell to new multi-year lows, as did Heating Oil and Natural Gas. RBOB remains the strongest in the sector and is still above its November low. Even dollar weakness was unable to lift energy prices.
The metals were significantly affected by the moves in the currency markets (metals are priced in dollars, as are most commodities, so a weaker dollar tends to support metals and commodities prices in general). All four of the major metals moved higher, but Copper remains the weakest in the sector. Gold rallied to test resistance, which has so far held firm, but due to its proximity to Friday’s close, we will likely see resistance tested early this week.
The currency markets had reached new extremes this week, with the dollar index reaching new highs for the current move. The Euro fell to new lows as well before both markets reversed sharply on Thursday. Thursday’s trading in the Euro was the most volatile in five years. However, none of the moves seen have impacted the long-term trends in the currency markets, all of which remain intact for now. The long-term trends, therefore, continue to favour the dollar, although both the New Zealand and Australian dollars are moving within range of key trend-defining levels.
Interest rate futures
The long bond displayed some strength during the first part of the week but then reversed sharply lower on Thursday, printing an evening star bearish reversal in the process. The RSI had earlier moved slightly through the 60 level but was unable to hold. This suggests further weakness ahead.
The other interest rate futures markets are also showing weakness, and we may see both the 5 & 10-year T-Notes complete a change of trend to down over the coming weeks.