The past couple of weeks has seen a considerable increase in volatility in several markets, due in part to what is happening in Greece and events in China. At the time of writing, the situation in Greece remains unresolved, so there could be further volatility this week depending on what happens.
The long-term picture however remains unchanged at present, with the long-term trends still up for stocks (that could change any time), mostly up for the dollar, down for most commodities and mixed for interest rate futures. This current mix is indicative of uncertainty in the markets on the whole and is something that we expect will be resolved soon, with some large moves very much due over the coming weeks.
The stock markets gapped lower on the open last Sunday night and then had a very mixed week of rallying and selling. Based on our long-term trend analysis the long-term trend is up in all four stock indexes that we trade at LS Trader. However, considerable technical damage has been done, which includes seeing the markets break and stay below their long-term trendlines from the October lows, as well as seeing a break of RSI bull market support at 40. These two technical events often occur ahead of trend changes, but as yet critical long-term support has held in all four markets. That could change though at any time.
We wrote in last week’s update that weakness was returning to the energy markets and, in particular, the crude oil markets. That was 100% correct as this week saw heavy selling in the oil markets, which was sufficient to resume the downtrend. In spite of a bounce seen during the second half of the week, the trend remains down, and we continue to look for weakness to take out the March lows over the next few weeks.
The grains markets have also seen some large moves with a mixture of strong and weak trade seen in different markets in the sector this week. Soybeans and soybean meal both saw weak trade early in the week, followed by renewed strength, which in the case of meal saw the market recover to a new high for the current move and reach its highest level in 8 months.
London Cocoa has also been strong of late, this week rallying to its highest level since April 2011. The next target lies at 2236. If that level can be cleared, there is potential for considerable further rally higher.
The long-term trends on balance still favour the dollar, particularly against the commodity-based currencies of Australia, Canada and New Zealand, which are the weakest currencies at present of those that we trade at LS Trader. The New Zealand dollar fell to new six-year lows this week and, the Aussie also fell to its lowest level since 2009. The Canadian dollar looks set to test its March lows against the dollar, and if support there is taken out we could see a move lower towards its March 2009 low.
Interest rate futures
Interest rate futures saw considerable volatility during the past week. The markets in this sector gapped higher on the open on Sunday night and rallied considerably higher before then reversing lower again.
The 3-month Eurodollar and the 5-Year T-Note both remain in long-term uptrends, but the other three interest rate futures markets that we trade at LS Trader, the 30 Year T-Bond, 10 Year T-note and the Long Gilts are all still in long-term downtrends. Depending on what happens in Greece this week we could see further large swings in this sector.