The past week has seen the move back towards risk-on in the financial markets continue, with stocks and commodities moving higher at the same time as interest rate futures and the dollar have been in decline.
The long-term trends remain down for stocks and down for most commodities, although there are a few exceptions, notably Gold, with Silver not that far behind. The dollar’s weakness has been sufficient to trigger a change of long-term trend in the Aussie dollar, with other currencies still lagging behind. The trend in the currency markets remains mixed. In spite of short-term weakness, all the interest rate futures remain in long-term uptrends.
The stock markets have continued their impressive bear market rally this week. The rally is still viewed as a bear market rally and mostly short-covering rather than new buying because volume is decreasing as the rally continues. This indicator suggests that the rally may be mature and might not have that much further to run. Considering that the S&P 500 has rallied above the 200-day moving average this week, it is unlikely that many shorts remain. Further strength will likely require fresh buying, rather than short covering.
So far, only the S&P 500 has been able to move above the 60 level, which is bear market resistance. As yet, that breakthrough has not been decisive, and further strength will be required. The other indexes that we trade at LS Trader are all weaker and are still below that key level. If each of the indexes break above 60, that would indicate further strength, but considerable further rally will still be required for a change of long-term trend. For now, the long-term trend remains down across the sector.
Having been in a deep bear market for the past few years, there are signs in some markets that life could be returning to the commodities markets. Gold, in particular, is advancing nicely and is already back in a long-term uptrend. The other metals are still lagging, but strength is evident in Silver, Palladium and Copper. Silver is the next most likely to complete a change of trend to up, with Copper not that far behind. Palladium still has some way to go.
The dollar has seen some weakness this week against several currencies. This weakness has already been sufficient to trigger a change of long-term trend in the Australian dollar. The New Zealand dollar could follow suit this week. It’s interesting to note that both of these currencies are commodity-based currencies, which goes to bolster that view that strength is returning to some commodities markets. Such a move is also consistent with a return to risk-on in the financial markets, something that is also being seen in stocks.
In line with overall dollar weakness, the dollar index itself moved lower this week as the RSI once again was unable to break through the 60 level, keeping it in the bear range. This weakness took the index down through its 50-day moving average and further lower to test its 200-day moving average, which has so far held. Next week should be an interesting week for the dollar. It’s also a week that sees quarterly currency expiration, so the March contracts roll forward to June.
Interest rate futures
Interest rate futures have continued their recent weakness this week, which is consistent with the current risk-on mood. However, it should be noted that the long-term trend is still very much up across the sector.
The 10 Year T-Note has fallen to test its 50-day moving average, and the 5 Year T-note has already dropped slightly below it. However, all markets remain considerably above their 200-day moving averages and major trend-defining support. The shorter-term markets in the sector are the weakest and are testing the 40 level on the RSI, which is bull market support.