The past week has seen some decent moves in several markets and has also seen the US Federal Reserve finally raise interest rates for the first time since 2006.
Stocks had a mixed week with some reasonably large price swings, but the long-term trends remain intact, which is down with the exception of the Nasdaq 100. The long-term trends remain down for commodities, most of which are still in a deep bear market, and continue to favour the dollar.
The S&P 500 had quite a volatile week. Having opened lower, it rallied through to Thursday and then turned sharply lower, trading back below its 200 day moving average. The RSI is also back below the 40 level, so we may see further weakness in the coming days. However, this is a very bullish time of year for stocks, with the much-fabled Santa Claus rally due to hit the markets on Wednesday, based on historical data.
The Santa Claus rally has generated a 1.5% average rally each year since 1950 for the last five trading days of the year and the first two in January. Let’s see if it materialises this year.
The Nasdaq 100 has seen similar price action to the S&P 500 but remains stronger. Here the long-term trend is still up, and the RSI remains above bull markets support at 40, which it has since September.
The Dax rallied for most of the week but turned lower on Friday. The index finds itself at an interesting juncture, as price, and both the 50 & 200-day moving averages are all pretty much at the same level. The long-term trend remains down, and the RSI is in the bear range.
Weakness in the energy markets has continued this week even though we have seen some attempted rallies. Light crude oil fell to a new multi-year low on Friday and may yet test its 2009 low, which was at 33.55 basis the back-adjusted continuous futures contract. Price action in Brent Crude was a near perfect image of US Crude, and the spread between the two (Brent historically trades at a significant premium) has all but disappeared.
Natural Gas has moved sharply lower, continuing its long-term bear market trend, and this week printed its lowest prices since March 1999.
The dollar index rallied this week, moving back above its 50 day moving average and remaining well above its 200 day moving average. The long-term trend is still up, and the RSI remains in the bull range. Whether we see sufficient strength to test the early December high remains to be seen.
The dollar was at its strongest against the Canadian dollar, where it reached its highest level since June 2004. The dollar also pushed the British Pound down to its lowest level since April, but as yet without downside follow through. As we have written several times in recent weeks, a decisive move below support on a closing basis would support the idea of a continued decline down towards the April low, which is almost 400 pips lower than current prices.
Interest rate futures
The long-term trends remain mixed in the interest rate futures sector and are still up for the shorter-term markets but down for the long bond. All five markets that we trade at LS Trader remain above their 200-day moving averages, but most remain bearish according to the RSI. This uncertainty is evidenced by a complete lack of trend in this sector at present.