The stock markets saw a sharp increase in volatility this week with a very large reversal bar printing on Wednesday which took out the entire month’s trading to date! Weakness continued at the open on Thursday before a reversal higher which retraced around two-thirds of the decline.
The S&P 500 printed a new all-time high on Tuesday before the sharp reversal seen on Wednesday which took out support and all the bars dating back to the 24th April. This down bar was on well above average volume and has left a major footprint on the charts. The two-day rally that followed was also on above average volume, so volume and volatility appear to finally be returning to the stock markets.
From last week on the Dax: “When markets don’t rally on what is perceived by most as good news, there is generally something not right. With volatility at elevated levels, for the past week or so, further pullback to fair value, currently at 12534 may follow.” The Dax did indeed pull back as expected and fell briefly below fair value on Wednesday and Thursday, before a minor recovery.
Similar price action was evident in the Nikkei, but the Japanese index held up better than its US counterparts and did not violate support.
The energy markets have continued their recent short-term recovery following the sharp reversal that was seen back on the 5th May. The long-term trend remains down across the sector, so this is classified as a bear market rally. The RSI has recovered to test the 60 level and price is also testing the 200-day moving average, so next week will be an interesting one as multiple resistance levels will be tested.
The commodities markets remain mixed, with the majority still in long-term downtrends and a handful of markets, such as Orange Juice and Soybean Meal falling to new lows for the current move.
Sugar, which has been in a very nice downtrend for the past few months looks as though it may have bottomed and is now testing resistance. The long-term trend is clearly still down with price below its 50 and 200-day MAs. The RSI also remains in the bear range.
From last week on the Dollar Index: “A 3-4 bar evening reversal pattern formed on the index and if Friday’s low is taken out early next week, may result in a test of this week’s lows.” Friday’s low was exceeded, as were the recent lows, so the index has now fallen to its lowest level since the 9th November.
Benefitting from dollar weakness, both the Euro and the British Pound rallied to new highs for the current move, with the latter closing above $1.30 for the first time since September last year.
Dollar weakness is evident against all the major currencies as these markets continue to gain against the dollar, even the commodity-based currencies of Australia, Canada and New Zealand, which have been the weakest of late. The Swiss franc also completed a key breakout this week out of a rectangle pattern that had encapsulated price action for all of this year to date. Friday made a nice clean breakout with a tall white candle and no upper shadow, known as a bullish marubozu. This suggests a strong market and continuation higher next week for the franc.
Interest rate futures
Interest rate futures did complete their recovery as expected and except the long bond, all made new highs for the current move. Some weakness was seen following the breakout, but the long-term trend remains up across the sector.