Many markets are at or reaching volatility extremes, so we could see some of the recent moves corrected this week with some sharp short-term reversals. However, many of these recent moves have changed the long-term trends, and more will likely follow. Volatile swings are likely to continue for the next week or so. The global macro picture looks bleak, and fear is at extreme levels.
From last week: “If last week’s lows are taken out, the long-term trend will turn down.” The Dax was the first index to complete a trend change. Other indices may test trend defining support this week.
Commodities continue to make big moves. The energy sector has been crushed, with Crude Oil down 10.07% on Friday alone. However, by our proprietary measures, volatility in the sector is not yet at an extreme so the downtrend does have room to run.
The dollar has continued its recent sell-off, and the dollar index has now closed lower in 11 of the past 12 trading days.
Weakness in the dollar has resulted in strength in the Euro, and the January high in EUR/USD has already been exceeded, meaning that the January EUR/USD effect has failed this year.
Interest rate futures
Interest rate futures have gone parabolic, and are accompanied by volatility extremes. Sentiment on the 30-year T-Bond is at 98% bulls. As of now, there are no reversal setups, but with such extremes, pullbacks are likely. However, with yields expected to fall further, higher prices are still very possible.