In last week’s LS Trader update we wrote that critical support tests were on the horizon for the dollar index and Nasdaq 100 and Euro, and suggested that these levels could have a key influence on the direction of several markets over the coming weeks. These levels were tested and each held firm, keeping the prior trends intact. Stocks and the dollar both rallied from their respective support levels. This leaves the long-term trends intact and they stand as previously, mixed for stocks, currencies and commodities, but still up for interest rate futures.
From last week on the Nasdaq 100 “3405 looks set to be tested this week and the market’s reaction at that level may determine prices over the coming weeks.” This level held firm and as mentioned above, a strong rally followed, keeping the long-term uptrend intact. The Nasdaq 100 does thigh remain over 200 points below its high of the year, so considerable further rally would be required for new highs to be established. The current waning momentum at this stage suggests that may be unlikely and that a break of support and change of trend to down is more probable over the coming weeks.
The S&P 500 also put in a decent rally, as indeed did the Dax and Nikkei. The S&P 500 remains the strongest of the 4 indices we trade at LS Trader and is the most likely to test the local top, which in the case of the S&P 500 is the all time high, currently at 1892.5 basis the June e-mini contract. The Dax’s rally has returned the market to the middle of the recent range, which has been in place since January, so a reasonable move in either direction will be required for a breakout. The Nikkei, currently the only one of the 4 indices in a long-term down trend may test resistance in the coming days.
Crude oil reached its highest level since September last year but has dipped back below resistance following the breakout. No leaded gas also pierced resistance and reached its highest level since August and this keeps the long-term trend up, as indeed it is for all of the major energy markets at present.
There has been little to write about in recent weeks on gold and silver, but both moved lower this week with gold in particular making a sharp move lower. Silver also dropped to its lowest level in several weeks and remains close to a test of key support. The long-term trends in the metals sector are mixed, and are up for gold and palladium, and down for copper and silver.
The 2 key levels in the forex markets that we have been writing about recently, 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937 both remained intact as the dollar strengthened. However, the dollar’s rally has been far from impulsive and has been characterized by small real bodied candles on the daily chart, so conviction is far from present in these markets. Another test of support and possible break to new lows still remains on the cards.
The inverse of the dollar index is the Euro, which pulled back from resistance, but as with the dollar index, still remains within touching distance of a breakout. Should a breakout in either market occur, it will hopefully be confirmed by a breakout in the other market, as that will likely give legs to any subsequent move. A breakout in one unconfirmed by the other would suggest a reversal and a return to the prior range might follow.
Interest rate futures
The long bond, currently the strongest market from the interest rate futures sector rallied initially but then saw some weakness as the week progressed, which culminated in a move lower on Thursday, the last trading day of the week. The long-term trend is still up for the long bond, as it is for all of the interest rate futures markets that we trade at LS Trader, but the 5 & 10 year T Notes both sold off throughout the week, as did the 3-month Eurodollar.