From last week: “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.”
The markets rallied sharply as expected. The S&P hit a high of 2634.5, just below our target of 2637, before closing lower on Friday. We may see further strength over the coming week or so before the primary downtrend resumes.
The energy markets appear to be trying to bottom. RBOB Gasoline leads the way to the upside, and we exited our short position this week, for the biggest winning trade of the year to date.
The metals markets continue to swing wildly. The long-term trend for metals is currently down.
The Dollar Index sold off sharply this week as the dollar gained against the majors. The long-term trend continues to favour the dollar but a change of long-term trend is within range for the Dollar Index should weakness persist.
Interest rate futures
Interest rate futures have seen some strength this week. The shorter end of the curve remained above support, and the uptrends are intact. The 10 Year and 30-year T-Bond have also rallied this week. Whether they make it back to new highs remains to be seen.