The past week was a shortened week due to the Labor Day Holiday in the U.S. on Monday. It has seen mixed trading in many markets with the stock indexes higher and the dollar lower.
This week sees another 2-day FOMC meeting begin on the 17th. This meeting is one that many expect to see the Fed raise interest rates for the first time in nine years. Friday this week is triple witching, which can often be a volatile day.
The long-term trends remain down for stocks and commodities and mixed for the dollar and interest rate futures.
Stock indexes had a mixed week but ended higher. The long-term trend remains down for all of the stock indexes. We have written previously about the key levels in the stock markets, which were the prior major support levels. These levels, once broken, were due to act as resistance. In the case of the S&P 500, Nikkei 225 and the Dax this resistance level has held, but the Nasdaq 100 broke it on an intra-day basis. The RSI remains in the bear range for all of the four stock indexes that we trade at LS Trader.
Either way, the price action seen since the low was printed on the 24th August looks corrective and, therefore, is likely a pause before the downtrend resumes. Therefore, unless the resistance levels mentioned above are broken, we can still look for new lows below the 24th August low.
Seasonally we’re in a very weak time of year for stocks. This is often due at least in part to portfolio managers rebalancing their portfolios and clearing out stocks that they don’t want to hold. Subsequently, September is the weakest month of the year for the S&P 500, Dow 30 and Nasdaq dating back to 1950. Whether that plays out this year or not remains to be seen
Coffee continues to trend lower, this week making its lowest print since January 2014. Further weakness towards 100, which is the next level of support may be seen. If coffee does fall that far, strong support can be expected as this level has been a support zone for coffee since 2006.
Both gold and silver traded lower this week, but trade is far from convincing. Silver remains below a downward sloping trendline that has remained intact since the May 2015 high. Gold remains below a trendline that has held since January. If that trendline is broken, that would be the first sign that a low was in. The long-term trend remains down for both markets as it also does for copper and palladium.
One of the biggest moves this week came in the lumber market, which looks as though it has found a bottom, at least for the time being. Lumber broke resistance on Tuesday and then rallied sharply higher for the rest of the week. The rally included a gap higher on Friday’s open, which is typically bullish and also saw the RSI move above 60 for the first time since June. This suggests further strength ahead, but it will take considerable further rally for a change of long-term trend.
Rough Rice also made a bullish move, rallying for four straight days this week to reach its highest level since January. The RSI broke easily through the 60 level, and there is little in the way of resistance on the chart between current prices and the 13.50 area.
The energy markets have mostly consolidated this past week. Natural gas has traded in an incredibly tight range for the past three weeks. Watch this market for a breakout and a potentially explosive move. The long-term trend remains down for the whole sector.
The past week saw quarterly currency contract expiration, so we rolled from September to December, which is now the front-month contract. The week has seen mostly weakness for the dollar and the dollar index. The long-term trend is currently down for the dollar index, and the RSI remains in the bear range.
The Euro, which is a near perfect inversion of the dollar index, rallied for four days this week but remains in the middle of its recent trading range. The commodity-based currencies all remain in long-term downtrends and are near their respective recent lows. Of these three currencies, the Aussie has been the most bullish this week. However, due to the recent tightening of the range in these currencies, each of them is within range of testing resistance.
Interest rate futures
Interest rate futures continue with mixed trades. There is very little in the way of trend in this sector at present, which is amply highlighted by the RSI hovering around the 50 level. The 3 Month Eurodollar remains the strongest in the sector and is still very much in an uptrend. The trend is also still up for the 5 Year T-note but is down for the longer-term markets in the sector.
Volatility is likely to increase this week in the bond markets due to the FOMC meeting.