We’d like to wish all our readers Happy Holidays and a Very Merry Christmas. We’ll be back next week with the final LS Trader newsletter of 2018.
From last week: “…given the Fed meeting, triple witching and the current geopolitical climate, there is room for some large swings in the markets.” The markets certainly delivered some significant moves as the stock markets made sharp declines. The Nasdaq 100 has fallen over 20% from its peak, leaving many commentators stating that it’s now in a bear market. That 20% figure is nonsense, as it means that 19.9% is not a bear market, but 20% is! In fact, the Nasdaq 100 entered a bear market on the 24th of October according to our proprietary system when it completed a change of long-term trend to down. That’s what enabled us to get short far ahead of the crowd and catch this week’s decline.
From last week: “The Nasdaq 100 is within range of testing support this week and may also breakout.” As mentioned above, the Nasdaq 100 did break support and make a sharp decline, ending the week lower by 8.51%. The S&P 500 also made a sharp decline, finishing the week lower by 7.37%. The S&P 500 may decline further to test the 200-week moving average, currently at 2379. The Nikkei and Dax also made similar declines as the long-term trend for global stocks remains down.
Sentiment on stocks has become extremely bearish. The bullish sentiment reading on the S&P 500 has fallen to 7%. This is the lowest level seen since January 2016 and is an indication of how negative the market has become. Sentiment extremes such as these often precede corrective rallies but cannot be used as a timing indicator on their own. Markets can remain extremely bearish for extended periods.
From last week: “Gold came close to completing a change of long-term trend to up before moving lower. The RSI has attempted to break the 60 level but has been unable to do so decisively and therefore remains in the bear range. A breakout above last week’s high will likely change that.” Gold did breakout as expected, completing a change of long-term trend to up for the first time this year. The RSI also broke above the 60 level.
The energy markets got destroyed once again this week with all markets making new lows for the current move. Natural Gas, which is the only market in the sector currently in a long-term uptrend, also broke sharply lower, bringing the 2018 bull market to an end.
The currency markets have seen mixed trading this week in a week that saw the Fed raise rates for the last time in 2018, and possibly for the last time in this tightening cycle. The Dollar rallied to its highest level against the Canadian dollar since May 2017. The dollar is on the verge of testing critical support against the Aussie, where a breakout to the downside would resume the long-term downtrend for the Aussie.
Interest rate futures
US interest rate futures all made new highs for the current move this week, and the entire sector is now in a long-term uptrend. Only the UK Long Gilt did not make a new high this week, and we may see support in the Gilt tested and broken this week.