Stocks have spent much of the past week rallying, which has kept the long-term uptrend for stocks intact. The dollar has for the most part moved sideways and the long-tern trend for the dollar is still mixed. Interest rate futures have rallied sharply, keeping the long-term trend up, and commodities have continued with weakness overall and the long-term trend for most commodities remains down.
The Nasdaq 100 was the strongest of the stock indices this past week and is the only index to completely retrace prior weakness. This move though goes unconfirmed by the S&P 500 and the Dow, and further gains may prove limited unless those two indices can also retrace recent declines. It’s notable that other international indices remain weaker than their U.S. counterparts.
From last week on the Dax: “The trend is now down but we’d like to see a move back below the prior support level early next week for an accelerated move lower, otherwise a short-term bounce may be seen.” The Dax was unable to push below the resistance line and the expected countertrend rally followed. This rally looks to be corrective and Friday’s weakness suggests we may see further weakness soon and possibly a break to new lows.
Of the 4 stock indices that we trade at LS Trader, only the Dax is below the 200 day moving average, and only the Dax is in a long-term downtrend on the basis of LS Trader’s proprietary trend analysis.
The energy markets broke sharply lower this week, resuming the long-term downtrends for no leaded gas and heating oil, and confirming a trend change to down for Brent crude. Friday’s rally in light crude narrowly kept the long-term uptrend intact but this may change soon if weakness persists next week. Natural gas also looks poised to break lower and may fall sharply should key support levels be broken. It’s significant that the recent corrective rally was unable to clear 50 on the RSI, which shows that the range for natural gas is still bearish.
We’ve seen relatively quiet price action in the currency markets, where both the Euro and dollar index have effectively traded sideways in a narrow range. The long-term trend remains down for the Euro and up for the dollar index.
The big move amongst the major currencies came from the British pound, which moved sharply lower on Wednesday and dropped to its lowest level since April, falling below intermediate support. The long-term trend remains up for the pound but further weakness towards the 200 day moving average may follow, which currently sits at $1.6619.
Interest rate futures
From last week “Price action early next week will be important as the 30 year bond ideally needs to hold above prior resistance, which should now act as support if the trend is good, and the 10 year note needs to regain that support level quickly.” We were looking for early resumption of strength in the interest rate futures markets and we got that, with the 5 & 10-year T notes breaking to new highs for the current move.
Strength in these two markets though lagged the 30-year T bond, which showed impressive strength during the second half of last week, keeping the long-term uptrend very much intact. The RSI on the 30-year T bond has reached its highest level since February and shows that momentum is still strong, keeping a focus towards higher prices over the coming weeks.