Market conditions are looking better than they have in months as some directional moves are appearing in the energy markets, currencies, interest rate futures and stocks. Stock indexes broke out to new all-time highs; Brent Crude hit a 2-year high and interest rate futures are breaking down. At the same time, the dollar’s corrective recovery continues.
Stocks remain bullish on a global scale, and new all-time highs were made this week in the S&P 500, Dax and Nasdaq 100. The S&P 500’s high of 2580.75 is just 20 points shy of our 2600 target, and that could be printed this week. The Nasdaq 100 fell through short-term support on Wednesday but reversed course and blew through the top of the running wedge on Friday on bullish news. Tall candles such as this on news events are often blow-off tops. Time will tell. The target for the running wedge remains at 6400.
From last week: “The Nikkei also continues its strong run and may test the April 2000 high at 21,800 this week.” The Nikkei, which lags behind all-time highs by a huge margin, reached its highest level since November 1996 basis the continuous back-adjusted chart.
The Dax tested and held support and surged back to new all-time highs on Thursday and Friday, keeping the long-term uptrend intact. There is bearish divergence between price and RSI, but volatility remains low enough to suggest that there is still upside potential.
We wrote last week about the Dow’s RSI reading, which at 87.78, was the 9th highest 14-day RSI reading in history. This week saw a new high in price without a new high in momentum, so there is some short-term bearish divergence.
The energy markets turned bullish this week with multiple upside breakouts. Except Natural Gas, the entire sector is now in a long-term uptrend.
Price action this week saw Brent Crude break the neckline and complete an inverted head and shoulders pattern and made its highest print in 2 years. There’s a similar pattern in Crude Oil, and both Heating Oil and RBOB Gasoline also broke to new highs for the current move.
Lumber resumed the uptrend this week and remains on target for our next target at 461, having made a new 13-year high this week.
Sugar has the makings of a potentially very constructive setup. The COT data shows that commercials are holding their largest long position in history. This is generally, but not always, bullish. Also, we have a 4-month ascending triangle setting up, an upside breakout of which would also complete a change of trend to up. In addition, we have very low readings in the ADX, which means that there is plenty of room for the market to run if it breaks out. If the upside breakout is successful, we have targets at 17.47.
We wrote last week about the potential head and shoulders bottom forming in the Dollar Index and noted that we could expect a break of the neckline. The neckline was broken this week, and this suggests that the bottom is now it for the dollar index. We see the mirror image in the Euro where we have a head and shoulders top. However, both of these moves have formed against the prevailing long-term trend in both markets, so as yet we do not have signals in either market.
Dollar strength is evident against other majors where we have long dollar positions against the New Zealand dollar, Japanese Yen and Swiss franc.
Interest rate futures
Both 5 & 10 Year T-Notes broke support and the latter completed a change of long-term trend to down and the 30 Year T-Bond is right on the breakout level. The potential head and shoulders top on the 30 Year T-Bond continues to form, and a break of the neckline could be seen in the coming weeks.