January has been a fairly quiet month from a trading perspective with many markets in sideways ranges, digesting last year’s moves. That is likely to change and could do so from as early as this week as multiple markets are on the cusp of breakouts.
The long-term trends remain intact and are still down for stocks, up for metals, down for energies, up for interest rates, and up for the dollar overall.
The January effect says that as goes January for stocks, so goes the rest of the year. January was a bullish month for stocks, which put in a considerable counter-trend rally. From its low point in early January, the S&P 500 has rallied almost 500 points. That rally becomes over 400 points if you start at the low print on December 26th. The season record, therefore, points to a good year for stocks. However, for now, the long-term trend is still down, and breakouts in either direction are out of range, so we’ll have to watch stocks from the sidelines for now and see what unfolds.
The energy markets have spent much of the past three weeks going sideways. The long-term trend remains down. Crude Oil has completed a head and shoulders pattern with a break of the neckline, which suggests strength may continue. This gives a target of 6745, a long way above current prices. However, the long-term trend is still down, and the RSI has been unable to clear the 60 level decisively.
Natural Gas, currently the weakest market in the sector, looks poised to complete a change of long-term trend and breakout to the downside on the open this week.
We’ve covered the January EUR/USD effect in recent weeks, which states that there is a strong tendency for this currency to put in its low or high for the year during January. Based on the March futures contract, those levels are 1.1337 and 1.1632. If this pattern, which has a 76% accuracy in past years holds, a break of either of those two levels would indicate which direction the currency is likely to move for the year. For now, the long-term trend remains down, so the technical picture favours that the high is in.
However, with the Federal Reserve has made mistakes with recent rate rises in the US, and hinted this week that those hikes would be paused and possibly reversed (as we suggested would be the case in past issues), would indicate dollar weakness, which would be bullish for the Euro. As ever, we will let the market tell us which way it wants to go and jump on for the ride when the timing is right. Until then, we wait.
Interest rate futures
Interest rate futures did see an increase in volatility this week, as we indicated in last week’s issue. However, the move has so far been insufficient for a breakout. The long-term trend remains up for the sector.