The stock markets continued with short-term weakness this week and have not made a new high since the 1st of the month. Tuesday’s wide range bar was the largest daily bar of the year to date, indicating that the short-term trend is down, even though the longer-term picture is still bullish.
The stock market rally came to an end this week, at least for the short-term. The S&P 500, Nasdaq 100 and Dax all broke short-term support. Whilst the long-term trend is still clearly up, and new highs are easily within range, additional short-term weakness could lie ahead. The short-term price action indicates indecision, as we have three consecutive doji/spinning top patterns, which shows confusion in the market in the very short term. The 50EMA, currently at 2326 on the S&P 500 e-mini will be the next level to watch.
The crude oil markets have drifted lower this week but remain above trend-defining support for now. Crude Oil is trading along its 50-week moving average and may be setting up for a move lower. It’s worth keeping in mind that the February low in 2016 was 26.05, and Friday’s close was 47.97, so a downtrend has plenty of room to run if heavy selling gets underway.
The metals have continued recent strength, led by Palladium, which rallied to a two-year high on Friday. If price can hold above the 800 level, we can look for a no look back rally higher.
Sugar turned lower again following the hammer pattern printed on the 17th March and went lower to print its lowest price since May last year.
In last week’s update, we suggested that the Euro may rally to test strong resistance at 1.09. It reached 1.0872 and may yet press higher. This resistance is perhaps a key level on the Euro as it also correlates to medium-term support for the dollar index. The February low at 99.07 will be the level to watch this week. If that level is broken, then we could see additional weakness, but the long-term trend is still up and continues to favour the dollar.
From last week: “The Australian dollar is approaching the upper boundary of a rectangle pattern that has been in place for 11 months.” The 11-month rectangle resistance held firm, and the Aussie fell almost 150 pips. This takes the Aussie back to around the middle of the range, and a breakout to the upside and downside is within range. A break to the downside would be a resumption of the long-term downtrend, whereas an upside breakout would be a change of long-term trend to up. With volatility now down to near its lowest level of the year, the eventual breakout should yield a decent move.
Interest rate futures
Interest rate futures rallied this week and exceeded the key levels that we wrote about last week. Also, the long bond broke the 78.6% retracement, which is generally bullish and is usually followed by a 100% retracement. This is further evidence that the low may be in and that we may be in the early stages of a trend change to up over the coming weeks.