The past week has seen stocks consolidate but has also seen continued strength in the energy markets and the dollar, and weakness in metals. The long-term trends remain up for US stocks, down for metals and interest rate futures, up for energies and sideways to up for the dollar.
Strength remains evident in the US stock markets, where the long-term trend is still up. As mentioned in last week’s update, one possible interpretation of the Nasdaq 100 is that of a large failed head and shoulders pattern, which if correct would give targets of over 800 points above current price levels.
The S&P 500 has also broken out of a large symmetrical triangle pattern during last week’s trading and tested the upper boundary of the triangle from above this week. However, the S&P 500 is considerably weaker than the Nasdaq 100 in terms of chart construction and proximity to their respective all-time highs.
Gold moved sharply lower on Tuesday this week following the failure to break resistance the previous week. This week’s decline took prices to their lowest level this year, and the long-term trend remains down.
Lumber continued to make new all-time highs with a series of limit up moves. We cautioned in last week’s update that a top was likely due based on extreme bullish sentiment, bearish momentum divergence and other factors that we measure at LS Trader. It’s possible that the top may have been seen on Friday with the daily charts printing a key reversal day and ending the day limit down. This may be the beginning of a corrective decline. However, it’s been a hugely successful trade, and the market remains above support. Price action early next week will be critical, or this market may unravel swiftly.
From last week: “There was insufficient strength in the Dollar Index to complete a trend change to up, and the Pound has held up just above the key trend change level. However, if dollar strength resumes this week, both trades could get triggered.” The Dollar Index did complete a change of trend to up as the rally continued, printing the index’s highest price since mid-December.
The British Pound has so far held support, and there has been a lessening of momentum as the decline has persisted. There is very slight bullish momentum divergence setting up on the chart but as we have said many times before that does not mean a bottom is imminent. Bullish divergence appears in downtrends. The more critical factor is the test of support. If support is broken, there is room for a further decline to the $1.3150 area.
The Australian Dollar has been unable to break resistance so far but came very close to doing so. A short-term head and shoulders pattern is forming which will either mark the bottom of fail and indicate a much lower move. We will know soon enough.
Interest rate futures
Interest rate futures all remain in long-term downtrends, and all US futures moved to new lows for the current move. However, there was some bullish price action on Friday, but the long-term trend is down. The only bullish thing for the sector at present is the near-record net long position for commercials on the COT report. With commercials near record net long and large speculators near-record net short, there is the possibility of a sharp move to the upside.