Just how much further can the likes of the FTSE 100 and EURGBP rise without some sort of decent-sized correction occurring? Daily relative strength index readings above 80% represent a very overbought situation. To give some measure here, the three times that EURGBP got so stretched, it went on to suffer dips of 4%, 12% and 6% respectively. The best moment to sell in each case was not when the daily RSI was at its highest level – as it is now – but once the price hit a new high but the RSI did not.
Applying this principle to the current situation, I feel able to continue seeking out small long positions in FTSE and EURGBP for now. The DAX is more interesting, as it is not nearly as overbought. Meanwhile, I think GBP’s weakness could extend further.
COMMODITIES OUTLOOK
09.45
The lack of action in commodities reflects the activity in the US dollar index. The price is going sideways to modestly downwards. Substantial moves in the CRB Commodity index tend to occur during large shifts in the Dollar Index, however. At some point this year, I am expecting a big move upwards in commodities, which implies a significant weakening in the dollar. Technically speaking, there are few signs of this occurring for now, though.
I continue to see near-term upside potential for EURUSD and for Brent, in particular.
for analysis of some leading commodities and EURUSD.WALL STREET OUTLOOK
13.15
With the US indices pulling back in pre-hours trade this morning, I am looking for long positions once more. You may think this is a risky business given how stretched they look on their daily charts. A useful exercise at this point is to cross-check the situation on the weekly charts. The S&P is not quite overbought on the timeframe, with a current RSI reading of 65%. The last couple of significant highs – in April and September last year – were preceded by readings a bit above this. And the nasty peaks of 2010 and 2010 were both heralded by readings in the 70s.
The bottom line is that I think we can squeeze higher in the very near term. Thereafter, a correction is likely. I have just read an excellent note on the Dow from Warren Firth (www.globalprimepartners.com.au) where he sets a target for the index of 14545, whereupon he reckons a shorting opportunity will occur. Warren’s record of calling turns is pretty darned good, so I’ll be watching this with interest.
for analysis of the US indices.Please note that the IC website does not alert me when a comment is left. If you want a guaranteed reply to your comment or query, please write to me at dominic.picarda@ft.com
