There were no new highs in any of the stock indices we trade this week. Although the long-term trends all remain up for these indices, there are some signs of weakness appearing, as explained in more detail below. The dollar was also weak but did nonetheless manage to reach new multi-year highs against both the Yen and the New Zealand dollar. Interest rate futures have seen mixed, but mostly weak trade and we have seen two addition interest rate futures markets confirm a trend change to down.
Of the four stock indices that we trade at LS Trader, currently only the Nikkei has an open long position. We remain flat the S&P 500, Nasdaq 100 and the Dax, the latter being by far the weakest at present and currently out of range for any new trades this week. The Nikkei has been trading in a very narrow range over the past two weeks but remains close to its multi-year high.
The S&P 500 failed to make a new all-time high for the second consecutive week but remains in a long-term uptrend, as do the other three indexes. However, continued failure to clear 60 on the RSI shows that momentum is weak. This week has seen the RSI drop to 44.43, just a few points above the bull market support level at 40. It has also seen the S&P break below a trendline that had held since the middle of October. If we see further weakness in the coming days and the RSI break below 40, it would be an indication that the top may be in and that we may see additional weakness back to at least the 2030 area, which is a potential support area.
The Nasdaq 100 has also failed to breakout to new highs. Here the RSI is slightly more bullish, and the Nasdaq is also holding above the trendline for the same period as the S&P 500. That trendline will dissect the market at 4430 on Monday’s trading. It will be interesting to see if the trendline holds. As a general rule, horizontal trendlines, known as support and resistance lines, are more valid than sloping trendlines due to that fact that people tend to draw trendlines in different ways and also have differences in their data, especially where futures contracts are spliced together to create a continuous contract.
The energy markets have been weak, and all five of the energy markets we trade at LS Trader have failed to breakout to the upside. This keeps the long-term trends down for three out of the five markets. Natural gas is still the weakest by far and remains close to testing major support.
Gold declined this week to its lowest level in 2 ½ months and perhaps importantly, dropped below 40 on the RSI. This suggests further weakness ahead and a possible test of major trend-defining support around $25 below Friday’s close.
Silver has also been weak and has closed right on the trendline from the early December low. The RSI has also dropped below 40. It could be a key week ahead for precious metals.
The Japanese Yen remains the weakest of the currencies that we trade at LS Trader. This week has seen the Yen fall to new multi-year lows and has also seen bullish sentiment drop to just 7% (the standard Japanese Yen contract is an inversion of the USD/JPY forwards that most spread betting brokers quote, so 7% bulls for JPY/USD is the same as 93% bulls for USD/JPY).
The dollar also reached new multi-year highs against the New Zealand dollar but has seen mostly weak trade against the other majors. The long-term trends though are still favouring the dollar; the recent correction as yet being insufficient to confirm a change of trend. It remains our view based on our proprietary trend analysis that the dollar will rally back to new highs both on the dollar index and against the other major currencies over the coming weeks.
The week ahead is quarterly currency expiration so the currency futures will roll from June to September.
Interest rate futures
Interest rate futures remain volatile, but further weakness has been seen. This has resulted in a break of critical support in the 30 Year Bond, the 10 Year T-note and the Long Gilts, the latter two resulting in a change of long-term trend to down. Therefore, the balance of trends from this sector is now down, and we could see the 5 Year T-note complete a trend change in the coming days should weakness continue in this sector.
Even the short-term 3-Month Eurodollar contract has seen considerable weakness this week. This market has been in a long-term uptrend since July last year and is now showing signs of weakness. A change of trend is still some way off.