The past week has seen a continuation of the bear market rally in stocks, which has now travelled so far that a change of long-term trend back to up is a possibility over the next few weeks, something that was almost unimaginable only a month ago. Strength in stocks has been accompanied by further dollar weakness and additional commodity market strength. There are further signs that more commodity markets may have put in a long-term bottom, but for now, the long-term trend in commodities remains down overall.
From last week on the Dax: “Friday’s close right at the high of the day is bullish and suggests further strength next week, particularly if the RSI breaks the 60 level. If it does, we may see another test of the 10,000 level.” The 60 level held firm on the RSI, but that did not prevent the Dax from reaching the 10,000 level.
However, the Dax has been unable to hold that key psychological level, closing just below it at 9992.5 (basis the June contract). This price action keeps the Dax between its 50 and 200-day moving averages, but more importantly, below 60 on the RSI. This level and the 10,000 level will be the levels to watch this week. For now, the long-term trend remains down.
The S&P 500’s bear market rally continues, with prices this week making a new two and a half month high. Price has now moved well through the 200-day moving average, and the RSI is at a bullish 70.36. As we have written in previous weeks, the rally continues higher on falling volumes, which generally suggests that the rally is based on short covering and is running out of steam. However, there are no signs yet of the rally failing, and with the RSI now at its highest level since late-2104, we may yet see further strength.
The bearish divergence that we have mentioned recently on Gold continues to be evident, and this week has seen some volatile trading in the yellow metal. For the first time in a month and a half, Gold has dipped below 60 on the RSI. This key level had previously been providing support, so the market moving back below this level puts a question mark over the rally in the near term. Longer-term, the trend is still very much up, and the focus remains towards higher prices. A break of last week’s lows would indicate additional weakness, possibly back towards the 50-day moving average, currently at 1197.
Interestingly, Silver, which has of late lagged Gold’s advance, moved higher this week, reaching its highest level since October last year. However, the long-term trend remains down, but that may change soon if the RSI can move decisively above the 60 level.
The dollar index completed a long-term change of trend to down this week as dollar weakness continues. The index dropped to its lowest level since October last week, and the RSI has fallen well below the 40 level, which is bull market support. With the trend turning negative for the dollar against more major currencies, this dollar weakness could continue. We could see the Euro, Canadian dollar and the Swiss Franc all complete changes of long-term trend this week.
Interest rate futures
Interest rate futures turned higher this week. The long bond found support at the 50-day moving average, and the RSI moved higher from just above the 40 bull market support level, keeping the long-term trend up.
The 5 Year T-Note bounced from just above its 200-day moving average and regained the 50-day MA as well. Additionally, the RSI regained the 40 level.
For now, the long-term trend remains up across the board for interest rate futures, in spite of the considerable weakness seen over the past month since the spike high printed back on the 11th February.