Stocks were unable to post new all-time highs this week but after weakness early in the week have rallied back to within touching distance of the recent highs. The trend remains up for stocks. The dollar has continued to weaken as seen by a six-week decline in the dollar index. Commodities remain mixed but will benefit from a weaker dollar if it persists.
The S&P 500 remained above short-term support and pushed higher on Friday to close just below the all-time highs printed during the prior week. Once again, volume has continued to decline and is not supporting the uptrend.
The Nasdaq 100 did not post new all-time highs this week but also closed just below the recent highs on Friday. Here also we see below average volume and declining volatility. These are not characteristics that support the continued uptrend.
The January stock market barometer says that as goes January, so goes the year. This indicates that when January closes the month higher, as was the case this year, that stock markets finish the year higher with a high probability of accuracy. Of course, that does not mean that the markets will end the year up, it just reveals a tendency that has been seen in the historical data.
The commodities markets remain mixed regarding their long-term trends. The energy markets continue to consolidate below the recent high posted at the end of last year. The long-term trends remain up, but price has so far been unable to breakout to confirm the resumption of the uptrend.
Gold and Silver were both higher this week, and both continue to show signs that an intermediate bottom was printed back in December. For now, the long-term trend is down, but that could change over the coming weeks if we see continue strength.
Lean Hogs continues to grind higher and this week reached its highest level since July. Volatility is in the sweet spot for further trend, but the rally is not being supported by volume.
Cotton broke out of a consolidation that lasted for most of January and may now test the August 2016 high at 77.98. London Cocoa broke the December low and printed its lowest price since October 2013.
Over the last few weeks, we’ve been writing about the tendency seen in the historical data for EUR/USD to post either its high or low for the year within the month of January. Since the market exceeded the January high on Thursday if this indicator is to hold true this year, then the 1.0374 low printed on the 3rd January will not be violated. This would suggest further strength for the Euro this week and general dollar weakness.
However, the long-term trend is still down for the Euro, and the recent rally has not seen impulsive price action but has instead seen choppy, corrective and overlapping bars on the charts, hardly a characteristic of a strong market.
Weakness is being seen in the dollar against many of the major currencies, and for the first time in a long time, some changes of long-term trend are coming within range, particularly in the commodity-based currencies of Australia, New Zealand and Canada.
This dollar weakness is evident in the dollar index which has now closed lower for six consecutive weeks. Such price action is not bullish and calls into question the prevailing dollar bull market consensus. For now, the long-term trends continue to favour the dollar, but the dollar will need to turn from not much below the recent lows to keep the trend intact.
Interest rate futures
The 50-day moving average remains the controlling moving average for the interest rate futures sector. This moving average continues to provide resistance for this sector, and it has since October last year. The long-term trend remains down, and volume and volatility have remained low during this correction that has been in place since the mid-December lows.
Additionally, the RSI has been unable to break above the 60 level on all rally attempts, which keeps the RSI in the bear range. Therefore, we continue to favour new lows in this sector and a resumption of the downtrend over the coming weeks.