The past week has seen an increase in volatility in the stock indexes and also the start of what may be a period of sustained weakness for stocks. For now the technicals remain intact and in favour of the long-term uptrend, but not much additional weakness is required for that to change.
The dollar has had a mixed week, as the dollar index broke through resistance twice, but as yet without follow through, while the Euro held key support. Interest rate futures and commodities have also been mixed, but the overall commodities bear market is very much intact.
The S&P 500 and Nasdaq 100 both moved lower this week, with the latter taking out key short-term support. However, for now at least, both indexes remain in long-term uptrends. Both also remain above their long-term trendlines and are also still in the bull range on the RSI. The S&P 500 may test short-term support and its trendline this week, and may also test bull market support at 40 on the RSI. If these levels are broken, it will indicate that the top may be in, at least for the coming months.
Of the four indexes that we trade at LS Trader, the Nikkei 225 remains by far the strongest in terms of proximity to its recent top. The Nikkei, however, is below its trendline from the October low, which it broke early last month.
Brent Crude ended the week lower and caught up with Light Crude in that it has now taken out its low of the year, which in the case of Brent was posted back in January. RBOB gasoline, which has been the strongest in the sector this year, traded sharply lower this week and will likely test trend defining support in the coming days.
Silver rallied this week and met key short-term resistance and also hit the trendline from the May high. This makes last week’s high a key level. Any strength above last week’s high would break resistance and the trendline, and would suggest that we were going to see a counter-trend bounce higher over the next few weeks. The long-term trend, however, is unlikely to change for the foreseeable future. Currently, it would take a move above 1786 for the trend to change, which is a long way above current prices.
Gold has effectively traded sideways for the past 14 sessions but is gradually working its way up to test resistance. Copper and Palladium remain weaker that the two precious metals, and both have fallen to new lows for the current move this week. The trend remains down across the sector.
The dollar index briefly pierced key resistance this week but has so far been unable to press higher. This is very likely due to the inability of the Euro to break its key support level. Ideally both breakouts need to happen together as one will confirm the other. The Euro will need to break support for the index to advance much further. Therefore, the July lows for the Euro are key not just for the Euro, but also for the dollar index and the dollar as a whole.
The commodities based currencies, which have been by far the weakest of late, have bounced higher this week, and the trends in the Australian and New Zealand dollars may be coming to an end for now. The Canadian dollar did fall to a new multi-year low this week but has since recovered some of the prior losses. The long-term trend, however, continues to favour the dollar almost across the board.
Interest rate futures
The trends in the interest rate futures sector remain mixed, and as has been the case for the past few weeks, there are no trends present in the sector. The long-bond has continued with its counter-trend rally and has this week reached its highest level since the end of April. The trend, however, remains down.
The long-term trend is also down for the 10 Year T-note and the Long Gilt but remains up for the 5 Year T-note and the 3 Month Eurodollar. If stock index weakness persists, we may see a flight to safety in the buying of bonds.