Global stocks have seen continued strength this week with multiple indexes making new all-time highs. Many markets remain in a neutral trading environment, but there are signs that multiple markets are beginning to awaken and that we could see some breakouts, volatility and price expansion over the coming weeks.
The S&P 500 made a thrust higher on Wednesday to all-time highs on above average volume. Price went over 3.618 standard deviations above fair value on Wednesday, which is the first time that has happened since October 2016. Volume has since declined with price so it’s possible that Wednesday was a blow off top and that we may see some short-term weakness ahead. Volatility remains elevated. This week’s high RSI print at 82.65 is the highest RSI reading since November 2010; such has been the strength of the recent rally.
The Nasdaq 100 also posted a new all-time high bit based on some of our proprietary metrics has been weaker than the S&P 500 and has also undergone quite a substantial volatility decline. There is no doubt that the long-term trend is very much up in both U.S. markets and the longer-term focus remains up, but a corrective pullback of larger magnitude than has been seen since November is due.
It’s not only U.S. markets that are at all-time highs; the FTSE 100 also posted a new all-time high this week, having broken out of a 16+ year consolidation. The German Dax has also shown some strength this week but remains below its April 2015 high of 12429.5.
The Crude Oil markets remain in an incredibly tight range as volatility continues to compress in a classic line market environment. The average true range in Crude has almost dropped in half since December. When this market eventually breakouts out, the resultant move is likely to be large indeed.
Gold and Silver’s counter-trend rally came to a sharp halt this week. Monday saw a doji printed on the daily chart and prices traded lower throughout the week, crossing back below the 200-day moving average. The long-term trend remains down for both precious metals.
As has been the case for the past couple of months, the currency markets remain in a range bound, two-way rotational random market environment. However, there have been signs that the long-term dollar uptrend may be about to reemerge. The Dollar Index reached its highest level in almost two months on Thursday before a pullback on Friday.
There are similar patterns evident in other currencies, and we continue to expect an eventual resolution in favour of the dollar. As with the Crude Oil markets, the currency markets are also undergoing volatility compression, but in the currency markets, it has lasted even longer. This suggests that the long-term trends have further to run and that we should see the Dollar Index make new highs, and other currencies, such as the Pound and Euro, fall to new lows beneath their January lows.
Interest rate futures
We’ve been writing for weeks that the recent strength seen in interest rate futures is counter-trend and that the long-term downtrend should eventually resume and prices fall below their December lows, and that remains the case in all the U.S. interest rate markets. The 3 Month Eurodollar has already exceeded that low and the longer-term markets may follow suit soon.
The exception to that may be the UK Long Gilts, which have been much stronger than U.S. markets. Gilts this week reached their highest level since October last year and have retraced more than 61.8% of the decline from the August all-time high.