For the most part, the markets are undergoing a period of volatility, volume and price compression and are therefore consolidating ahead of the next trending campaign. The long-term trends all remain intact and are still up for stocks and the dollar, and mixed for commodities. Many commodities are showing some early bullish signs, and this is the asset class most likely to deliver a change of long-term trend.
Note that many markets are closed on Monday due to the Martin Luther King Jr. holiday in the US. This week also sees the ECB meet on Thursday and the US Presidential Inauguration on Friday.
The S&P 500 failed to breakout to a new all-time high this week and has been moving sideways in a range since the middle of December. Volatility is undergoing compression, and price and volume are following suit.
There has also been significant volatility and price compression in the Dow, which has still been unable to hit the 20,000 level and remains in a very tight range. 19,999.63 remains the all-time high for the Dow.
The Nasdaq 100 is the exception. Having not reached the volatility extremes seen in the S&P 500 and the Dow, the Nasdaq 100 continues to grind higher with a slight increase in volatility. Price made a new all-time high on Friday of 5063.25
The first five trading days of the year early warning system, saw that period close up, which indicates an up year for stocks. We will continue to watch for the January effect in stocks, which says as goes January, so goes the rest of the year. In other words, a bullish January equals a bullish stock market for the year ahead, based on past data.
As written above, several commodities are showing early bullish signs. Soybean Meal and Soybeans are of particular interest. Having tested a strong shelf of support, these markets have made a short-term breakout from a narrow trading range on above average volume and may complete upside breakouts and changes of the long-term trend this week.
We’ve written recently about the January effect in EUR/USD, which states that there is a strong tendency, according to past data, for this pair to post either its high or low for the year during the month of January. The low of the month posted back on the 3rd was at 1.0374 (March futures). Friday’s close was 1.0668, almost 300 pips above the low.
The past two trading days have also seen the Euro test the 50-day moving average, which it has only closed above once since October last year.
The dollar index, which is the inverse of the Euro, has been undergoing volatility compression and mean reverting to fair value over the past two weeks and now appears to be looking for support. The long-term trend remains up for the dollar, so we may see a resumption of the uptrend soon, which would put pressure on the Euro.
Interest rate futures
Interest rate futures continue to trade in the vicinity of the 50-day moving average, and almost exactly to the 38.2% retracement of the decline from the November spike high. The trend remains down for the sector and price may yet turn lower and resume the downtrend in the next couple of weeks.