The week ahead will be a shortened trading week due to the Bank Holiday in the UK and the Memorial Day Holiday in the US on Monday.
The past week has seen stocks post slight new all time highs and has also seen the dollar continue its recent recovery, with the dollar index rising to its highest level since the 7th April. Historically these markets are inversely correlated, so both are unlikely to keep rising together for long, meaning that either stocks or the dollar will likely weaken in the not too distant future.
The long-term trends remain up for stocks and interest rate futures, and mixed for commodities and the dollar, although there is a short-term upward bias in the dollar.
The S&P 500 posted very slight new all time highs this past week, registering at 1899.25 basis the June e-mini contract on Friday, less than 1 point below the psychological 1900 level. The trend remains up and the odds favor a break above 1900 this week, although it must be noted that there is minor bearish divergence between price and the RSI, which shows that momentum is waning a little.
The Nasdaq 100 has continued to recover since posting a double bottom, and with the RSI breaking back above 60, a test of the local top looks to be on the cards. Last week was a strong bullish week, so we can look for a test of the multi-year high posted back in March.
The Dax looks good for another test of all time highs, with 9823.5 basis the back-adjusted continuous contract, printed 21st January as the current all time high. There is a possibility of a double top with the May 15th high just 1 point below that level, but this is far from confirmed. A breakout above these 2 highs would be bullish, especially if on a closing basis. Considerable weakness would be required for the double top to be confirmed, as the intervening low would need to be taken out. That low stands at 8934.5.
The Nikkei, still the only index of the 4 that we trade at LS Trader in a long-term downtrend, had a strong bullish turnaround this week from just above key support. As we mentioned last week, this correlates with a move higher in USD/JPY, which also bounced higher from support.
As before, volatility remains extremely low, and the front month contract on the VIX has fallen to new lows again. This represents extreme complacency in the stock market.
Strength has returned to the energy sector this week as crude oil broke higher to reach its highest level since September last year. Further rally, possibly to as high as $109 may be seen. Both Brent crude and no leaded gas look poised to breakout soon as well but heating oil and particularly natural gas continue to lag.
Palladium rose to new highs for the current move and is now at its highest level since August 2011. Further advance towards 870 remains on the cards. Soybean meal also rose to new highs this week, with the high printed Thursday at 508 being a new all time high basis the back adjusted continuous contract that we use at LS Trader.
It’s been another week of gains for the dollar, which continues to rise against the majors. The dollar index has rallied to its highest level since April 7th, and although the long-term trend is still down further strength near term looks likely. The RSI has risen to 64.38, which is bullish and points to further dollar strength. Continued dollar strength would further pressure the Euro, which has continued to fall since printing its $1.3993 top earlier this month. Further declines to trend defining, critical support remain a possibility.
USD/JPY bounced higher from just above critical support as did the Nikkei. These 2 highly correlated markets move together, but it is noticeable that the dollar’s rally against the Yen has been less forceful.
Interest rate futures
The shorter-term interest rate futures led the markets for a change this week. The December 15 3-Month Eurodollar contract rose to a new high on Tuesday before pulling back to Friday’s close. The Euribor also matched its recent high. The entire sector remains in a long-term uptrend and new high prices are still expected.