It’s been a mixed week for several markets and sectors this week as many markets have seen swings both up and down at different stages in the week. The long-term trends remain as before and are still up for stocks, mostly up for the dollar, down for commodities and mixed for interest rate futures markets. Several markets remain poised for what could be key breakouts as numerous markets are within range of testing important support and resistance levels.
The Nasdaq 100, which is currently our only long stock index trade at present, fell early in the week but then recovered well, retracing almost 50% of the decline from the 20th July high. The long-term trend remains up, and the RSI is still in the bull range. The market also remains above the long-term trendline from the October low, which currently supports the market around 4389.
The S&P 500 has seen similar price action this week, almost retracing 78.6% of its recent decline. Often when a move retraces more than 78.6% of a decline it goes on to retrace the full amount, so we could yet see another go at the recent highs. The long-term trend remains up, but the RSI continues to be range-bound between 40 and 60 as it has for nearly all of this year to date, which is very indicative of a choppy, sideways market. A clear break out of this range on the RSI may result in a decent move.
From a seasonal perspective, we remain in a weak time of year. 1988 to 2014 has August as the weakest month of the year for both the Dow and the S&P 500.
The energy markets remain weak. Light crude this week feel below its March low basis the back-adjusted continuous contract, but has so far not continued much lower following the break of the key low. The trend is very much down, and the RSI is in the bear range. Brent Crude has also been weak but remains above its low that was formed back in January. That level could be tested this week. RBOB gasoline remains the strongest of the sector and has yet to break down and remains a long way above its January low.
Following the recent capitulation of the metals, we have seen a couple of weeks of consolidation as the metals hold just above their recent lows. Copper was the only market in the sector to print new lows for the current move this week. The long-term trend remains down for all four markets in the sector. As before, sentiment is very negative towards the metals, so a bounce would not be a surprise, but the longer-term trend looks set to remain down for quite some time yet. A considerable rally will be required for any of the metals to rally sufficiently to trigger a change of trend to up.
The dollar has had a mixed week of trading which has seen some swings in both directions against several of the majors. The dollar index has remained range-bound for the past few months and has so far been unable to break through resistance. It’s a similar story for the Euro, only inverted. In the Euro, key support continues to hold as the market remains in a box range that has held since April. There will eventually be a breakout from this range and that breakout should yield a decent move. The odds slightly favour that the breakout will be bullish for the dollar and probably lead to a rally back towards the highs of the year in the dollar index, and for the Euro to head on down to test the March lows.
Interest rate futures
The trend for interest rate futures remains mixed, with the long-term trend still up for the shorter-term markets, but still down for the longer-term markets. In the short-term, however, there is strength being seen in the sector. The long bond has rallied to its highest level since early May, but a considerable further rally will be required for a change of trend to up to be seen.
The 5-year T-Note remains the strongest of the sector at present, and may breakout to the upside this week, as may the 3 Month Eurodollar.