The US stock markets continue to post new all-time highs, but other global indexes continue to lag behind. Friday’s close of 2211.25 on the December S&P 500 contract is the highest ever close. The dollar has also continued to rise, and interest rate futures have continued their steep declines. There are signs that some of these moves are over-extended and may see some form of mean reversion over the coming week or so.
The S&P 500 crossed the 2200 level for the first time, making new all-time highs and a new all-time closing high on Friday. However, the continued lack and decline of volume does not bode well for continued advances. The trend remains up but buying volume needs to materialise soon, or this market is likely to be subject to a correction.
The Nasdaq 100 continues to lag the S&P 500 and therefore provides bearish non-conformation. Of course, that can change with a breakout to new highs, but volume is extremely light on the Nasdaq 100 as well.
The Dax continues to trade within a 4-month long box range which spans approximately 800 points (from 10,013 to 10,826) and looks poised for a breakout. As we wrote last week, classical charting techniques give a target of around 11,600 in the event of a successful breakout by adding the height of the range to the breakout level. However, continued failure to break the resistance area could result in a break to the downside. If a market cannot move one way, it is likely to move the other.
The Nikkei continues to benefit from a weaker Yen and has this week reached its highest level since January. However, with the Yen’s position looking extended and possibly due a reversal, we may also see a correction in the Nikkei. It should be noted that there is no volatility or valuation excess in the Nikkei, so there is further room to run. The long-term trend remains up.
The metals rolled forward to the next contract and have continued to move lower on above average volume. Volatility is expanding but not at an excessive level by any means, which is supportive of further trend.
Soybean Oil has completed a head and shoulders pattern with a very strong candle on Friday, supported by above average volume. The break of the neckline gives a measured target in the region of the 46.00 level, some 900+ points above Friday’s close.
The dollar index has made new 13 1/2 year highs this week but is showing a slight loss of momentum. The Euro, which is a near perfect inversion of the dollar index, is testing a major support level. This zone of strong support includes the 2015 double bottom between 1.0473 and 1.0490. A decisive break and close below this level could have further bearish implications. While there are signs in terms of sentiment suggesting a bottom, there is no volatility or valuation excess, so the Euro could still move lower. The major support level is the biggest obstacle to further declines.
Interest rate futures
Interest rate futures have declined further this week supported by considerable volume. However, there is a bullish candle reversal pattern (buying lizard) evident on the daily charts on Friday that have considerable demand tails. Volatility is also reaching extended levels so some form of mean reversion higher towards fair value may be seen soon. Regardless, the trend remains firmly down.