Stocks rallied to new all-time highs on Thursday, before closing the day lower and lower again on Friday. From a technical perspective, the long-term trends are unquestionably up. However, momentum divergence is evident, and there is also some volatility compression.
Added to this, we are possibly at or near to a sentiment extreme. This is evident by the cover of The Economist this week, which has a picture of stampeding robotic bulls for tech stocks. Therefore, we are possibly near the end of the trend and will likely see support tested this week. However, blow-off rallies are often seen at the end of such moves, so a sharp short-term rally can also not be ruled out. As ever, price action is king, and we wait to see what unfolds.
From last week: “Gold continues to hold above support around 1550 and remains in a long-term uptrend, with further strength looking likely. A test of 1600 may be seen this week.” Gold exploded from the open and closed higher each day this week, making a new high for the year
Also from last week: “Palladium could be forming a continuation flag pattern, which, if completed, would suggest significant further upside. Volatility peaked on the day of the high and has since been under sharp compression implying that there is plenty of room for additional rally.” Palladium exploded out of the flag and hit a new all-time high at 2751.90. Silver continues to lag but may breakout this week.
The dollar showed additional strength this week until Friday. A shooting star pattern printed on the weekly Dollar Index chart, with weakness also evident on Friday’s candle. Naturally, the Euro printed almost the perfect inverse, with a bullish engulfing pattern on Friday.
Interest rate futures
Interest rate futures have also seen continued strength, with rallied back to new highs for the current move being seen in the 3 Month Eurodollar, 10 Year Notes and 30 Year Bonds. The 5 Year Notes may breakout this week.
Monday is Presidents’ Day in the US, so US markets will be closed.
US Stocks opened the week lower but quickly recovered to make new all-time highs.
The Dax completed its breakout and made new all-time highs. The Nikkei continues to lag and is still struggling with resistance around the 24,000 level.
Gold continues to hold above support around 1550 and remains in a long-term uptrend, with further strength looking likely. A test of 1600 may be seen this week.
Palladium could be forming a continuation flag pattern, which, if completed, would suggest significant further upside. Volatility peaked on the day of the high and has since been under sharp compression implying that there is plenty of room for additional rally.
The dollar has continued to gain ground against most of the majors this week. The Dollar Index has made a new high for the current move and is now at its highest level since January 2017.
Conversely, the Euro continues its decline and is now at its lowest level since September 2002. The next level of support is at 1.0820. Beyond that and parity starts to beckon.
Interest rate futures
The long-term trend remains up for interest rate futures. The 3-bar morning star reversal pattern printed during the prior week continues to provide support and maybe the platform for a launch back to new highs.
Stocks rallied throughout the week until the new all-time high was posted on Friday, and the market closed down for the day, printing a dark cloud cover on the daily chart for the Nasdaq 100. The S&P 500 was a bit weaker on Friday, completing a bearish engulfing pattern. Both patterns suggest weakness for 3-5 days next week, but the long-term trend is firmly up.
The Dax and Nikkei continue to lag and have yet to complete breakouts.
Gold fell sharply on Monday and Tuesday and tested support on Wednesday before rallying for the rest of the week, remaining in a long-term uptrend.
The energy markets remain weak overall, with new lows for the current move being posted, as well as some corrective strength during the second half of the week. The long-term trend is down for the sector except for Brent Crude, which may test trend-defining support this week.
It’s been a decent week for the Dollar after gains were seen against the majors. EUR/USD violated the January low at 1.1030 this week, meaning that if the January effect is to hold again this year, 1.1293 will not be exceeded and the trend will, therefore, remain down.
The Aussie also fell to a new low for the current move. GBP/USD broke to the downside from a symmetrical triangle pattern and may continue slightly lower. However, the long-term trend is still up for the Pound.
Interest rate futures
Interest rate futures made new highs for the move on Monday but then fell for a few days before reversing from Thursday’s lows. Friday completed a 3-day morning star bullish reversal, keeping the long-term trend up.
From last week: “US stocks rallied to new all-time highs again this week but did see some weakness as the week progressed, which culminated in a bearish engulfing pattern on both the S&P 500 and Nasdaq 100 on Friday. That could lead to additional weakness in the coming days. For now, the markets are above support, and the trend is up.”
The markets gapped lower on Monday, breaking short-term support. They ended the week and the month with a big down day on Friday. The long-term trend remains up, but not the short-term. Friday’s low tested the 50-day SMA.
We now have data in for the January Barometer, which states that as goes January, so goes the year. Historically, this indicator has an 85.5% accuracy ratio since 1950. If this barometer is correct, with January being a down month, so will the year be a down year. However, the long-term trend for global stocks is still up, and if one goes further back before 1950, the overall record is less impressive. Sticking with the trend is more objective.
From last week on Palladium: “Prices closed lower on both Thursday and Friday, so although the trend is unquestionably up, the risk of a correction remains and is increasingly probable. Volatility has risen to a level not seen since July 2019.” Palladium did correct as expected, and did so sufficiently to violate support. The exit was our most profitable trade of the year to date.
EUR/USD moved lower early in the week but recovered on Thursday and had a strong day on Friday. We now have the January high in at 1.1276 and the low in at 1.1030. Let’s see if the January effect holds for this currency this year.
Interest rate futures
Interest rate futures continued their recent rally, and may now go on to test their August highs. The long-term trend is up for the sector.