The past week was a shortened trading week due to the US Labour Day holiday on Monday. It also delivered what may be the beginning of a change of trading landscape for the next few months following a well overdue move in the stock markets, which broke out of their incredibly narrow, low volume trading range on Friday with significant moves.
From last week: “Rather amazingly, the entire trading range for a month and a half has been contained within 50 S&P points. That’s not something that will continue for long, and a volatility breakout beckons.” Volatility picked up right on cue, with a huge move down, certainly by recent standards, on Friday. The breakout to the downside was sufficient to take price through the 50-day moving average and the 40 level on the RSI, which means the RSI has now entered the bear range for the first time since late June.
Of more importance was the volume with which the move occurred. On the S&P 500, average volume has been around the 1.5m mark, but Thursday saw just shy of 3m, and Friday, 4.87m. This will be hard for bulls to overcome. However, the long-term trend is still up, and considerable further weakness will be required before we get a change of long-term trend and a meltdown.
The Nasdaq 100 moved in a very similar fashion, and for now, the trend remains up for both US indexes. The Nikkei, which is still the weakest of the four indexes we trade at LS Trader, remains in a long-term downtrend and may move sharply lower this week having been unable to stay above its 200-day moving average. The Nikkei might open sharply lower on Sunday night
We also wrote last week: “It should be noted that September is the weakest month of the year for stocks based on historical data going back to 1950. That does not mean that this month will be a down month for stocks, only that there has been a historical tendency for weakness during September on average.” It is a month of weakness, as we noted in last week’s update. It’s going to be fascinating to see how the stock markets trade over the next few weeks following Fridays volatility and volume breakout.
Crude Oil continues to work a possible head and shoulders bottom pattern on the weekly chart. Whether this resolves itself in a break of the neckline, or as a failure pattern remains to be seen. The long-term trend remains up for the energies market with the exception of RBOB Gasoline.
The metals markets remain mixed, but weakness is evident in the short-term. Copper remains the weakest of the metals and is hovering just above trend-defining support.
Orange Juice completed a breakout to new multi-year highs, rallying through resistance to print its highest price since February 2012.
We also wrote last week that patience is still required in the currency markets with the knowledge that once we do get a decisive breakout from this seemingly endless consolidation, either up or down, the resultant breakout should be massive. This breakout has yet to happen, but it’s possible that the significant move in stocks seen on Friday could be the catalyst that takes many other markets out of their long-term consolidations.
The dollar index is currently positioned roughly in the middle of a wide trading range and continues to trade around its 50 and 200-day moving averages. The Euro is in a similar, albeit inverted position. The time duration of the consolidation pattern suggests that the eventual breakouts in these markets will result in some very large moves. For now, we wait for the market to point the way.
Interest rate futures
Interest rate futures have made a breakout of their two months+ consolidation, but as yet without confirming a change of trend. There was quite heavy selling seen on Thursday and Friday, and on above average volume, so there could be further weakness ahead. For now, the long-term trend remains up in the sector for all markets, except for the 3 Month Eurodollar, which completed a change of trend to down a few weeks ago, albeit so far without any follow-through.