The past week has seen the downtrends come to an end for now in stock indices and the energy markets. However, the long-term trend remains down, and both sectors may revisit their recent lows in the coming weeks. It should be noted that global stocks remain in a bear market, with prices below a downward sloping 200-day moving average.
In addition to the Santa Claus rally, which points to a bullish year, we also have a bullish first five trading days of the year being bullish. This indicator has an 83.7% accuracy for predicting full-year gains when the first five trading days of the year are bullish.
However, the long-term trend is down, and global stocks are in a bear market. The sharp rally seen since the low on the 26th December is corrective and has not quite retraced 50% of the prior decline. In spite of that rally, the RSI remains in the bear range and has only managed to reach 53.2 on the S&P 500. The market is also back to a resistance level where prior support from the October low should now act as resistance. The daily candles also show a contraction and a loss of momentum. It’s possible that we may see further strength in the short-term, but the weight of the evidence still points to lower prices, and the December 26th 2018 low being broken.
The energy markets continued their recent rally and broke above resistance, bringing the very profitable downtrends to an end. The LS Trader system exited all short positions this week, all of which had been very profitable since entering back in October for RBOB Gas, and early November for Crude, Brent, and Heating Oil. The long-term trend remains down. The rally has so far retraced around 38.2% of the decline since October and may yet turn lower again.
Palladium continues to print new all-time highs and remains bullish. Gold and Silver remain in uptrends but have not yet shown any signs of follow-through since the breakout. The weakest metal by far is Copper, which remains in a long-term downtrend.
The dollar has seen further weakness this week. The Dollar Index has fallen to its lowest level since mid-October. For now, the long-term trend remains up, but the market is flirting with its 200-day moving average. The LS Trader system is currently flat all currency markets as there are no directional trends in the immediate term.
Interest rate futures
Interest rate futures have seen some price weakness so far this year, but all markets in the sector remain bullish and in long-term uptrends, holding above support.
A note on the COT (Commitments of Traders report). With the US government currently in shutdown, the COT reports are not being run so we cannot provide any comments on commercial positioning. This does not affect the system as we don’t use the COT data as part of the system, it is merely an interesting tool for spotting extreme or unusual positioning. The last data we have shown commercials still holding a huge net long position in the interest rate futures market. That likely remains the case.