It’s been an interesting and profitable week in the markets. The Nasdaq 100 rose to new highs on Monday (unconfirmed by the S&P 500) but then unraveled as the week went on, and the dollar soared as we suggested may happen in last week’s update. From last week: “There have been gains in the dollar index and a test of the recent high may be at hand, as well as a test of the major recent lows in the Euro. Trading for the most part remains relatively quiet but there are signs that several moves are building up ahead of a breakout. Potentially large moves could lie ahead in various markets.”
Several large moves have come to pass already, with big moves being seen in the currency markets and interest rate futures. It looks likely that there will be numerous excellent trading opportunities over the coming months that will carry on the recent excellent run that began last year and is still ongoing. The LS Trader system has this week seen system equity move back to within touching distance of all time equity highs last seen in the last week of January.
From last week: “The S&P 500 also printed new all time highs but no follow through has been seen and the market closed marginally lower for the week. We can look for the area around the late December 2014 highs to provide support, as prior resistance becomes support, but should that support fail to hold, lower prices may be ahead”.
The S&P 500 failed to print new all time highs this week, giving a bearish non-confirmation of the Nasdaq’s new high print for the current move, and the failure led to a sell-off which perhaps critically took the market back below the prior highs, which as we noted in recent updates, should have provided support if the trend was good. Weakness then extended further to breach structural support and the RSI has fallen sharply to 46.68 and looks to be en route for a test of bull market support at 40. Although considerable further weakness will be required for a change of trend to down, a break of 40 on the RSI would be a clear indication that the top may be in.
Having exited the S&P 500 this week, we still remain long the other 3 indices that we trade at LS Trader, with the Dax still by far the strongest, making a new all time high close on Friday. The Nikkei also reached its highest level for the current move
It’s not just stocks, currencies and interest rates that have been making moves; decent moves are also being seen in various commodities markets. Gold and silver have both fallen hard this week and we may be on the verge of the resumption of the long-term downtrend in silver. This RSI dropped below 40 and thereby moved into the bear range, and price confirmation could follow this week. Gold fell harder, but still narrowly remains in a long-term uptrend. That could change this week as the November lows are very much within range.
From last week: “The dollar index broke out of the triangle and as we suggested last week, such a move would be bullish and would suggest that the rally was not complete and that new highs were ahead. The move has so far taken the index to within 50 pips of its January high and that level may be tested this week. The Euro, which is a near-perfect inversion of the index declined this week and may also drop to new lows below its January low.” Both the dollar index and Euro made thrusts from the triangle and both went on to reach new highs in the case of the index, and new lows in the case of the Euro, which were the lowest lows seen since September 2003.
The dollar is advancing across the board and is in range of new breakouts in several of the other currency contracts. This week also sees quarterly currency expiration as the March contract expires and rolls to June.
Interest rate futures
Interest rate futures have fallen hard this week and a change of long-term trend to down is in range for the entire U.S. interest rate futures sector. Both short and long-term markets have come under price pressure from heavy selling and the RSI is in the bear range for all markets, which is often a precursor to a change of trend to down.