The past week has seen the most volatility in the markets since the prior stock market top in late January. This volatility has filtered through into many other market sectors, bringing an end to a few current trends. However, none of last week’s moves has resulted in a long-term trend change, so the trends remain as before, up for stocks (Dax being the exception), up for the dollar, down for interest rates and mixed for commodities.
From last week on the S&P 500: “Weakness at the end of the week has violated a 14-week trend line that has been in place since July.” This week’s selling unquestionably represents a change of character in the stock markets. Wednesday’s bar was the biggest bar in a long time and was accompanied by heavy volume, which indicates institutional selling. However, the weekly and monthly charts still show a clear uptrend and the long-term trend is still up.
Also from last week: “The Nasdaq 100 completed a double top pattern on an intraday, but not a closing basis. That pattern would project to another 300 points of decline.” Selling resumed this week in the Nasdaq 100 and the 300 point decline projected from the double top pattern was easily exceeded. The long-term trend remains up, but a change of trend to down is within range.
The Dax, which has been the weakest of the indices we trade at LS Trader and the only one currently in a downtrend, triggered a short entry on Monday as the neckline of a large head and shoulders top was broken, as was a nine-year trend line, which had been in place since the March 2009 low.
Gold rallied to its highest level since the 1st August, breaking above resistance and bringing an end to a very profitable downtrend, one in which the LS Trader system had been short since the 1st May. As mentioned in previous weeks, the chances of a bottom in the metals markets has increased due to commercials taking a rare net long position in Gold (first time they have been net long since 2001), and Silver, where they are long for the first time since the COT data has been recorded. Palladium, of course, is the leader of the metals and the only one currently in a long-term uptrend. Interestingly, commercials are still net short Palladium, which possibly indicates how much farther this market has to run over the coming months and years.
The Australian and New Zealand dollars broke to new lows for the current move, but overall, the dollar has seen weakness this week. The long-term trend continues to favour the dollar against all the majors with the expiration of the Swiss franc.
The British Pound has seen some strength this week and is moving within range of a potential long-term trend change to up. That may surprise many who have a negative view of Brexit. However, note that commercials have been accumulating a significant net long position for the past few months, which is currently not that far shy of an all-time net long position.
Interest rate futures
From last week on the 30 Year T-Bond: “The right shoulder low at 141.09 was broken, which invalidates the potential head and shoulder bottom and now projects further weakness towards 135.” Prices fell to a new multi-year low this week at 136.50 before reversing higher. All markets in the sector moved higher this week in contra trend rallies as stocks fell. However, the long-term trend remains down for the sector.