Weekly Update – 3 April 2016 – LS Trader

Several markets completed a change of long-term trend this week, and there could be more to follow in the days ahead. US stocks continue to rise towards last year’s highs, but other global stock indexes are heading lower. The dollar has turned lower this week, and commodities have seen mixed trading.

Stocks

The S&P 500 has managed to grind out another week of the rally and has reached its highest level this year. From a bullish perspective, the market is above its major moving averages, and the RSI is in the bull range, but there is no question that the rally is tired. Volume continues to decline, as it has as the rally has extended to its current levels. For now, the long-term trend remains down, but a change of long-term trend to up is now within touching distance.

The picture is very similar for the Nasdaq 100, but the tech index remains considerably further below change of trend levels than the S&P 500. Seasonally, we’re still in a strong time of year. Historically, April is the best month of the year for the Dow 30, dating back to 1950. The S&P 500 and Nasdaq 100 are both highly correlated to the Dow, so higher prices certainly can’t be ruled out.

From last week: “The Dax continues to find resistance at the 60 level on the RSI, which suggests that the rally here too is running out of steam and that the market may turn lower again over the coming weeks.” The 60 level held firm on the RSI, and the market has rolled over as expected, back below the psychological 10,000 level. Here, the long-term trend remains down, and the RSI is still in the bear range.

Also from last week: “The Nikkei 225 remains the weakest of the four indexes and the most likely to turn lower first.” This week saw the Nikkei break lower from a head and shoulders top. Traditional measuring targets suggest further declines to around the 15500 level, but quite likely lower. The RSI has fallen through the 40 level, having been unable to break 60 during the earlier rally, and, therefore, remains in the bear range with the long-term trend being down. All this has happened at the same time that the US markets have reached their highest levels this year.

Commodities

Gold ended the week slightly ahead for the week but has seen a range of over $40 from low to high. The yellow metal has twice bounced almost exactly off its 50-day moving average. As we stated last week, if the trend is good, the RSI should hold above the 40 level. So far it has.

Silver has had a volatile week, which has included a big down day on Friday. As noted in previous weeks, Silver has remained considerably weaker than Gold and stays in a long-term downtrend.

All of the energy markets have seen weakness this week, and all remain in long-term downtrends. Whether we see new lows again remains to be seen, but these markets have fallen sufficiently over the past two weeks to suggest that is a possibility.

Currencies

The counter-trend strength seen in the dollar during the previous week reversed this week as expected, and it’s been a bad week for the dollar. This weakness has seen new lows in the Dollar Index, as well as a change of long-term trend for EUR/USD and USD/CHF. It has also seen the commodity-based currencies all move to new highs for this current move.

As we wrote in last week’s update, the dollar does remain in a long-term uptrend against the Pound. This week saw the Pound move above and then back below its 50-day moving average. The RSI has once again fallen short of the 60 level, and, therefore, remains in the bear range, so the focus is still towards a test of the February low at 1.3840.

Interest rate futures

Interest rate futures have moved higher this week, keeping the long-term uptrend intact. As before, all the markets in the sector remain above their major moving averages, and the RSI is also in the bull range. This suggests further strength ahead, but will to a large extent depend on what happens in the stock indexes over the coming weeks.

Good trading

Phil Seaton

LS Trader

Leave a Reply

Your email address will not be published. Required fields are marked *