The LS Trader System hit new all-time highs for the second consecutive week as high volatility and market trends persist.
Stocks fell to new lows this week, falling below the December 2018 low as expected. This is likely to be just the first leg down in a broader bear market. New low weekly closes tend to persist with weakness the following week, so new lows are likely.
Markets are reaching a volatility extreme, and there is also momentum divergence between price and RSI. Therefore, a corrective rally, which may be sharp, could begin over the next week or so. Such a rally could retrace around 38% of the decline from the all-time high printed on the 20th of February. Measuring from Friday’s low on the S&P 500, that would suggest a rally to the region of 2637. We may then see the next leg down to exceed the current lows.
From a longer-term perspective, it would not be unreasonable to expect the 2000 level on the S&P 500 tested. From a bigger picture perspective, a 38% retracement of the entire 2009 to 2020 rally would see a decline to around 1606. It will not surprise me if we see those levels before this sell-off ends.
From last week: “The Dollar Index opened the week sharply lower but then put in an even sharper 4-day rally, and will likely test the highs of the year this week.” The Dollar did rally, and the index, based on back-adjusted continuous futures, reached its highest level since 2003.
Interest rate futures
From last week: “Interest rate futures rallied to a new high on Monday, but the sold off. The long-term trend remains up, but support could be tested this week.” Support was tested and broken on the long bond and ten-year T-Notes. However, the shorter end of the curve held above support and remain in uptrends.