This coming week will be a shortened trading week due to the Bank Holiday in the UK and the Memorial Day holiday in the US. As of Friday’s close, the long-term trends remained up for US stocks, up for the Dollar, down for interest rate futures and mixed for commodities.
The Nasdaq 100 continues to grind higher. The current market pattern is that of a massive failed head and shoulders pattern, which if correct would give targets of over 800 points above current price levels. That move could get underway with a breakout this week, which if successful may lead to a test of the March 13 all-time highs.
The S&P 500 has consolidated since breaking out of a large symmetrical triangle pattern. The upper boundary of the triangle from above has been tested, and the market remains above the triangle. The RSI is funding resistance at the 60 level, but a break above last week’s highs may see the RSI move decisively above 60 and the bull market resume.
The energy markets moved sharply lower this week, stopping us out of our long Crude Oil trade. We remain long the remaining markets in the sector but have tight stops. A breach of last week’s lows will likely usher in a deeper correction.
From last week on Lumber: “It’s possible that the top may have been seen on Friday with the daily charts printing a key reversal day and ending the day limit down. This may be the beginning of a corrective decline. However, it’s been a hugely successful trade, and the market remains above support. Price action early next week will be critical, or this market may unravel swiftly.”
Last week’s comments were right on target, and the Friday mentioned was the top, at least for now. The market did unravel sharply with a couple of limit-down moves, which resulted in us exiting a hugely profitable long trade, which was also our most profitable trade of 2018 to date.
Corn made its highest print in almost two years but has printed a long-legged doji pattern on the weekly chart, which reflects indecision. The trend remains up, and the market is above well-defined short-term support.
Last week on the British Pound: “Bullish divergence appears in downtrends. The more critical factor is the test of support. If support is broken, there is room for a further decline to the $1.3150 area.” The Pound broke support and has continued lower following the breakout. The trend remains down. Two potential bullish factors are bullish momentum divergence setup (no trigger) and very bearish sentiment. The last time sentiment was this negative against Sterling the Pound was almost 1000 pips lower against the dollar.
Interest rate futures
Last week on interest rate futures: “The only bullish thing for the sector at present is the near-record net long position for commercials on the COT report. With commercials near record net long and large speculators near-record net short, there is the possibility of a sharp move to the upside.”
The COT bullish commercials profile proved to be bang on, and interest rate futures rallied sharply. However, price action was a bear market rally, and the long-term trend is still down. We may see a resumption of that downtrend over the coming weeks.