This past week has seen stocks rise to new all time highs (in the case of the S&P 500), and the US dollar weaken across the board. Interest rate futures have pushed higher but as yet have been unable to clear critical resistance. Commodities have been mixed but have seen some explosive moves in both directions.
The S&P 500 broke through key resistance to register new all time highs. Although the rally over the past 4 weeks from the 1732 low basis the March e-mini contract has been strong, momentum is waning. There is bearish RSI divergence on the daily and weekly charts, which does not as yet confirm the advance to new highs. Similarly, Friday’s candle was a spinning top, which is an indecision pattern. Therefore things are not as yet quite as bullish as they may appear with an index at all time highs. 1846.50, which for so long acted as resistance, should now act as support, but due to its proximity to current market levels it remains to be seen as to how well, if at all, that holds up.
Whilst the Nasdaq 100 has also pushed to new multi-year highs, the move is unconfirmed by the Dow 30. Although this is not a market we trade at LS Trader, it is one that we watch for price confirmation, or as in the current market environment, non-confirmation. This does not mean that U.S. markets cannot move higher, merely that at present the Dow is lagging. Should the Dow gain sufficient strength to rise another 250-odd points and also breakout, we could have the makings of a sustainable global stock market rally.
Both the Dax and the Nikkei in particular continue to lag behind their U.S. counterparts, so the rise to new all time highs (S&P 500) and new multi-year highs (Nasdaq 100) is far from a global affair.
Last week we wrote about natural gas and said that the recent large daily swings showed no sign of abating. How right that was but the extent of those moves was even larger than could have been expected! Much of this volatility was likely due to the expiration of the March contract and the premium that it was trading to over April. This led to a steep sell-off in March and a much smaller decline by comparison in April. April is now the prompt month and with the trend still up despite last week’s bashing, a bounce may occur.
Natural gas was not the only big mover; oats, coffee and lean hogs all made decent moves as well. Oats and coffee have so far been massive winners for the LS Trader system, so far racking up many multiples of initial risk, and both trends are still very much under way. Lean hogs is a trade that has been open for only a short while, but has also racked up considerable profits, helped largely by the 750 point advance seen last week. This rally has so far seen hogs rise to its highest level since September 2008 basis the continuous contract.
The dollar index ended the week lower and the dollar was in fact lower across the board. Having fallen through short-term support, the index looks set to test the next level of support this week. With the RSI already in bear market territory having moved below the 40 level this week, momentum points to lower prices for the dollar. It is important to note that the dollar index came quite close to breaking out and giving a confirmed change of trend to up a few weeks ago, but was unable to do so. Therefore the long-term trend is and has been since July last year, down.
Interest rate futures
Interest rate futures rolled out of March into June last week. The week or so ahead promises to be key for this sector as critical resistance is likely to be tested in the long bond. Basis the daily continuation chart, June rose to around 20 points below key resistance. With the RSI already bullish at 64, if the long bond can clear resistance we would likely see the move confirmed by a new high on RSI as well. This would then put the market into clear open sky with little overhanging resistance to hinder further advance. Such a move in the long bond would likely lead to a similar move in the 10 year note, which is currently the laggard in the sector and the only one of five interest rate futures that we trade at LS Trader that is still in a long-term downtrend according to our proprietary analysis.