The past week has seen the FOMC meeting, the Bank of Japan move interest rates to negative, and has seen stocks move higher. The energy markets rallied, but all remain in long-term downtrends. The dollar has had a mixed week but is close to testing a key level against the Swiss Franc, as well as a potentially significant breakout on the dollar index.
Stocks have had a second consecutive bullish week, but still finished the month sharply lower than where it began. Based on the historical record known as the January Barometer, down Januarys point to down years, or at the very least, years in which stocks can be purchased later in the year at much lower levels. This indicator has an 87% accuracy since 1950.
From a trading perspective, a more useful indicator is a monthly S&P 500 close either above or below the high and low of January. Based on the current futures data, that means a monthly close above 2043.5 would be considered long-term bullish, and a monthly close below January’s low at 1804.25 would be regarded as bearish. For now, the long-term trend is down in spite of the recent rally, and the RSI is still in the bear range. However, resistance will likely be tested very early this week and Friday’s bullish day suggests strength may continue at the open.
The Dax had a volatile week but has been less bullish than the other stock indexes that we trade at LS Trader, and remains below resistance and still in a downtrend. However, resistance is not far above Friday’s close, and in volatile trading could easily be tested early this week.
The Nikkei, benefitting from the BOJ’s negative interest rate move, already broke resistance last week but remains in a long-term downtrend. The rally brought the trend to an end for now, and the system exited the trade on Friday for a nice 770 point profit, having been short for most of January.
The energy markets rallied, with both Brent and Light Crude breaking resistance. Heating Oil and No Leaded Gas also moved higher, but the latter has so far been unable to break resistance.
Metals have once again seen mixed trading. Gold rallied to test its 200-day moving average, which it has been beneath since October but has nonetheless reached its highest price since November. The yellow metal is now in the middle of its trading range.
Lean Hogs moved higher again this week and may continue higher towards age October 2015 high at 75.65 over the coming weeks.
The currency markets have been mixed this week with the dollar climbing against some of the majors and declining against others. The big move came in USD/JPY, where the market shot higher on Friday and moved well through both the 50 and 200-day moving averages. The RSI also moved through the 60 level, which suggests further strength ahead.
The dollar did fall against the Canadian dollar, which has continued to decline since its high printed back on the 20th January. This move resulted in the system exiting a very profitable long trade, banking 691 pips in the process.
The dollar index remains in a long-term uptrend, and if the RSI make a decisive move through the 60 level, may rally to test the December high, a level which, if exceeded, could have significant implications for several markets.
Interest rate futures
Interest rate futures all moved higher this week, and the long-term trend is up across the board. The 5 Year T-Note fell just short of its early October high, and that level may be tested this week. The RSI has risen to a bullish 77.07, which is the highest RSI print since January last year.
There is minor bearish divergence in the 30 Year T-Bond, where Friday made a new high in price without a new high on the RSI. That may be negated if Friday’s high is exceeded.