Trendspotting amid low volatility
As you are probably aware, the VIX is hovering at or around all-time record lows. This reflects an incredibly low-volatility environment for stock markets. However, at least the markets have been in a clearly defined bull trend. While it must be hard for many investors to keep their funds in what could arguably be described as a highly overvalued market, they cannot deny this is a strong nine-year bull trend.
Hedge funds are having a more difficult time finding either bull or bear trends to follow. Longer-term direction trends in forex and commodity markets are hard to locate. I’m also finding it difficult to spot short-term trends for swing or day trading.
I will let the charts do the talking. Below I can show you clear examples of directionless markets, starting with WTI Crude. This has been trading in a clear sideways pattern for about a year now. Today’s price is also hovering around the same level we saw two years ago.
AUD/USD is in a very clearly defined one-year trend channel, as you can see in the daily chart below. The green 500-day, red 200-day and blue 100-day moving averages are very clearly emphasising a sideways trend.
Corn has been in a tight sideways trend for about two months since the middle of March. But in the daily chart below you can see the sideways trend has really existed since at least last October. Again the 100 and 200-day moving averages highlight this sideways trend.
The EUR/USD daily chart is more exciting from a trend-following perspective. This shows a rising market since the beginning of January, albeit a very gradual one through February, March and April. The rally has accelerated in recent days with a break above the green 500-day moving average line.
The weekly chart, however, unfortunately reinforces the message that we are in a longer-term sideways trend. It’s clear that this pair has been trending sideways for the last two years as we recover towards the highs in the second half of 2016.
Gold and silver
Gold is yet another market clearly lacking any direction. In the weekly chart below you can see we’ve really not gone anywhere for almost four years. Yes of course we have jumped around – in particular in the first half of 2016, a really good recovery – but after testing the 2014 high the market reversed to remain in a longer-term sideways trend.
The blue 100-week moving average has been flatlining for almost a year and a half. In recent months, the red 200-week moving average has also been moving sideways.
Silver, unsurprisingly, has also been following a similar pattern. We moved mostly sideways through 2015 before a very gentle sell-off into the end of the year, followed by a recovery to mid-2016. This recovery reversed when we hit the green 500-week moving average. The market since remained in a sideways trend, as we sold off gradually into the end of the year. This year we are very clearly moving only sideways.
NZD/USD and USD/JPY
The NZD/USD weekly chart below speaks for itself and has been moving sideways for the past year. You can see that, at the end of 2016 and more recently this month, we tested the October and December highs from 2014. These highs seem to have held nicely. However, this only emphasises the fact that we are trading sideways when we are still hovering around late-2014 levels.
USD/JPY has had some fairly decent very short-term trends of late. From the second week of March, the pair suffered quite a significant sell-off into the middle of April. However, this trend could not be maintained and we regained almost all of the losses just as quickly by mid-May. I think I can make a good argument for the pair being in a sideways trend this year, if you look at the daily chart below.
Technical Analyst & Trader
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