It’s been a mixed week with the S&P 500 reaching new all time highs before reversing lower on Friday. The dollar has continued to gain against most of the majors, although on balance the long-term trend is still against the dollar. Interest rate futures had been heading lower but rallied Friday, keeping the uptrend intact, whilst commodities have been mixed.
The S&P 500 printed new all time highs on 3 consecutive days this week basis the e-mini back-adjusted continuous contract, but fell just short of round-number resistance at 1900. Friday’s daily chart printed a bearish engulfing pattern, so some further weakness to lead to a test of support at 1823.5 may follow. The RSI still remains in the bull market range, with a move below 40 on the RSI required to change that.
The Nasdaq 100 continues to be weaker than the S&P 500 and has continued lower since breaking support earlier in the month, making a series of lower lows and lower highs, which is technically a bear market set-up. As we wrote last week a move lower to 3405 looks increasingly likely based on the market’s structure and the declining RSI, which is now in bearish territory.
The Dax remains on target to test 9759 the 24th February high and if successful possibly the all time highs posted in January.
From a historical perspective, April is the last of the seasonal strong months and is the best performing month for the Dow, the second best month for the S&P 500 and the third best for the Nasdaq, so it may be premature to call a top in place yet for stocks. April does however lead into the weakest months of the year beginning with May, and the old stock market adage of “Sell in May and go away”. For now the trend is up for 3 of the 4 stock indices we trade at LS Trader, the exception being the Dax. That however would change on a break to new all time highs, which could be on the horizon.
Commodities have been mixed for much of the past week, with only a few markets making decent moves. Most commodities markets have been consolidating for the past several sessions.
Palladium, which is currently the strongest metal, rallied for all 5 days and continued the recovery that began with a bullish piercing line pattern printed the previous Friday, and should be good for further strength through the 802.45 March 24 high.
Energies all still remain in long-term uptrends, but much of the trade seen during the past several weeks has been choppy, sideways action that is consistent with a correction. This holds true for all the markets in the sector except for natural gas, which had an extremely bullish run earlier this year, one that is currently being corrected.
From the grains sector, rough rice has rallied to within touching distance of key resistance, which looks likely to be tested in the next week or so. Soybeans and soybean meal both rallied to new highs for the current move, with both markets briefly reaching its highest level since our data began for these markets, going back since 1968 basis the back-adjusted continuous contract. Both markets have been higher on the basis of cash prices.
The 2 key levels that we have been writing about in recent weeks in the forex markets remain intact; 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937 for the same contract month. As long as these 2 levels hold we could be seeing the early stages of some dollar strength, which at present would be counter to the long-term trend. The dollar index has retraced just over 50% of the decline from 24th November and may be headed higher to test the January highs. As ever, price action is the only thing that can confirm an idea, but the technical picture is looking increasingly bullish for the dollar.
Interest rate futures
Interest rate futures declined to new lows for the current move (exception being the strongest of the US markets, the long bond) before rallying on Friday. Short-term interest rate futures rallied after some mid-week weakness, with the Euribor looking set to test recent highs, and the 3-month Eurodollar rallying from a key shelf of support. The long-term trend remains up for all 5 interest rate futures markets that we trade at LS Trader.