The majority of the markets that we trade at LS Trader are in a very strong trending phase, as they have been for much of the past couple of months. This has resulted in a period of outstanding performance for the LS Trader system, which may reach triple digit gains for the year to date this week. Either way, the system will be posting an excellent return YTD by the end of the third quarter. Historically, the fourth quarter is the best performing quarter of the year for the system so we could post a very good return for the year, well above the 100% gain mark if the fourth quarter performs in normal fashion.
The S&P 500 continued with weakness that began during the prior week and broke through an upward sloping trendline from early August in the process. This trendline was then tested from the underside on Wednesday but the line held and a big down day was seen on Thursday. This took the RSI down to 42.93, just above bull market support at 40. The long-term trend is still very much intact but whether the all time high at 2014.5 posted on Friday 19th September is the top remains to be seen. Whether the 40 level on the RSI holds over the next week or so will be a clue. If 40 is broken on the RSI, a move back to the August low at 1882.25 may follow.
The Nikkei rose for the week and came within 10 points of its 2014 high. This level may act as resistance, particularly if other global stock markets continue their recent declines. However, should a breakout occur, higher levels could be ahead. The RSI has remained in the bull range and there is plenty of room to the upside for further strength. Should the Nikkei clear resistance it would be at its highest level since November 2007, prior to the crash.
Metals have continued with recent weakness this past week. Silver fell sharply early in the week to its lowest level since June 2010 and may head lower towards the next level of long-term support at 1580. Gold ended the week slightly lower but the big declines came from copper and palladium, with the later having declined sufficiently from the high posted at the beginning of the month to confirm a change of trend to down on the basis of the LS Trader proprietary trend algorithm. Copper may follow suit this week, with a change of trend being confirmed by a break of major support, a test of which looks to be imminent.
The dollar index moved above the 85 level for the first time since July 2010 as the dollar continues to gain against the major currencies. The RSI this week rose to 84.75, which is a very bullish level and shows just how strong the dollar has been in recent weeks.
The dollar index’s rise was due to the continued collapse of the Euro, as well as the dollar rising to new highs against most of the majors. The Euro dropped to its lowest level in 2 years on the basis of the back-adjusted continuous contract. On the basis of sentiment, not a reliable timing indicator by any stretch, there is barely a Euro bull left. What this effectively means is that pretty much everyone who wanted to sell Euros already has so there will be little in the way of further selling pressure from new sellers. Therefore a bounce can be expected but this will not put much of a dent in the very established downtrend, and following a corrective bounce, if it comes, much lower levels should be seen over the coming weeks.
Interest rate futures
Interest rate futures posted gains for the week and the long-term trend still remains up for the sector. As has been the case for some considerable time, the short-term markets in the sector continue to underperform (exception being the Euribor) and a change of trend to down in the 5 year T note is within range, although a break of considerable support will be required before such a change is confirmed.