The LS Trader system has continued its strong start to the year in spite of an increasing level of volatility seen in several markets. There are however a handful of markets that continue to trend well, and these markets are generating more than enough profit to offset the volatile markets.
Two things occurred this week that are of particular interest. Their long term importance will only be known after several more weeks. The first factor came in a market that we don’t trade at LS Trader, but it is nevertheless a major market and one we keep an eye on, the Dow 30. On Monday, the Dow formed a key reversal day that completely engulfed the entire price range of the prior 20 days! I can’t recall a key reversal day engulfing that many prior days’ range, although much of those prior 20 days have seen relatively low volatility. Considering the extent of this reversal, it is perhaps surprising that the Dow recovered so quickly and went on to post new multi-year highs. In the space of just a few days, there is a strong argument for the bull and bear case for stock indices!
The second key event, which is also potentially significant, is the bullish break of a downward sloping trendline on the dollar index that has held in place since 2002. We have written in previous weeks that we expected the dollar to rally in the near term and this adds some fuel to the bullish dollar argument.
The S&P 500 has followed a similar price course to the Dow mentioned above, apart from the fact that the key reversal was not so evident. The S&P 500 however has failed to recover to new highs, so that will be the focus point in the coming week.
The Nikkei remains the strongest of the indices that we trade at LS Trader, and this week closed at a new multi-year high. Last week we wrote that a move and close above 11570 would be bullish and that has so far been the case, with the March contract reaching 11715. This has been another extremely profitable trade for the LS Trader system, and it continues to run.
Copper completed its change of trend to down as the metals sector continues to be under pressure. However, of perhaps major importance to this sector is the critical support shelf that is within range for both gold and silver.
Brent crude has continued sharply lower following the completion of an evening star pattern on the weekly charts that we wrote about last week. In fact, with the exception of natural gas, the entire sector has taken a bettering over the past 2 weeks. Heating oil in particular has continued its near vertical decline, crossing below the 200 day moving average. A change of trend to down is within range this week. US Light crude (we trade both Brent and US Crude at LS Trader) has also continued its recent weakness, also moving below the 200 day moving average. US Crude has for some time been in a long term downtrend according to LS Trader’s proprietary trend identification and may now head further south towards $87 basis the April contract should $90 support give way.
In last week’s update we wrote that May wheat looked set to trade below $7 a bushel for the first time since June last year, and that did happen. Wheat dipped as low as $6.975 before mounting a small recovery, but the trend is still bearish.
The dollar index completed the breakout and change of trend that we suggest may happen last week.
The British pound continues its bear trend, taking out the prior week’s lows as expected. On a closing basis $1.50 is just about holding, but should the market close this week below $1.50, look out below. There is little in the way of chart support to prevent a decline of a further several hundred spread betting points in this market.
The LS Trader system finally exited USD/JPY following a large reversal day on Monday that brought the trend for now to an end. This has been an extremely profitable trade since we entered last year back on the 15th November at 8070 basis the December contract. This single trade banked as impressive 1131 spread betting points profit.
Interest rate futures
Short-term strength has continued in the interest rate futures sector, which appears to have bottomed out around 4 weeks ago, at least for the time being. The shorter term markets have once more been the most bullish in the sector which is as expected, since the shorter term markets never completed a change of trend to down according to LS Trader’s trend analysis. Both the 5-year T notes and 3 month Eurodollars, are within range of their recent highs.