LS Trader Weekly Update – Monday 29th August 2011

Volatility has remained high once again over the past week, with some large swings seen in stocks and commodities, especially Gold, which made a new all time high and then a steep sell-off followed. The long-term trends remain down for stocks and the dollar and mixed for commodities.

Stocks

Stocks endured another volatile week and continue to have large swings on an almost daily basis. This was epitomised by Friday’s price action surrounding Ben Bernanke’s speech at Jackson Hole, which initially saw stocks decline 2% but then end the day ahead by 1%.

Amidst all the volatility, which still remains at very high levels, the odds are still that we have seen a major top for stocks back in April but if the S&P can decisively move above 1200 we may see some short-term strength. However, the trend is down without question an d downside targets remain at 1076, 1026 and 1000 on the September contract.

As we wrote last week, with the exception of the Nasdaq 100, all of the indexes that we trade at LS Trader have been unable to clear the 2007 highs and this means that on a long-term basis the indexes are making lower highs and this is a bearish set up.

The German Dax continues to be the weakest of the indexes and we’re still looking at the next support target around 5270.

The VIX ended the week substantially lower by over 10% for the week but had earlier been approaching the recent highs seen 3 weeks ago at 48.

Commodities

The main commodity story of the week is Gold, which made 2 records during the past week. The first was the new all time high posted on Tuesday at $1917.90 on the December contract, which was followed by a huge $200+ decline over 3 sessions, before finding support at $1700 and the n moving higher. The daily charts show the formation of a hammer pattern on Thursday, with the low of the hammer just above $1700 and that level may now provide good support.

October Crude Oil clawed back most of the losses from the prior week but still remains in a downtrend and below the $90 resistance area. The current short-term range spans some $15, from $75 to $90. A break of either level could be good for a decent move in the direction of the breakout.

The grains sector had a strong week with gains seen across the board.

Currencies

The dollar index ended the week lower again but did not quite fall to new 17-week lows. The trend remains firmly down for the dollar index as it does for the dollar against most of the majors. The US dollar continued to advance against the Swiss Franc and the recent long-term downtrend appears to be over for the immediate future.

The dolla r did not fare so well elsewhere and was lower against the majority of the majors, including against the Yen, Euro, New Zealand and Australian dollars.

Interest rate futures

Interest rate futures yields pushed marginally higher this week, sending prices lower. Prices however remain near the highs of the year and the long-term trend remains up across the sector.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 22nd August 2011

Volatility has remained high over the past week, which has overall seen continued weakness for stocks and the dollar, as well as several commodities. The exception to that is the metals sector, which has once again seen new all time highs for Gold.

Stocks

It continues to look as though we have seen a major top in the stock markets and prices continue to head lower. We may yet see a test of the prior week’s lows at 1076 and at this stage that looks quite likely. Further below that we have support at 1026 and 1000 on the September contract. There does appear therefore to still be considerable room to the downside on the S&P 500 and the same can be said for the other major indexes.

From a longer term perspective, all of the indexes that we trade at LS Trader were unable to clear the 2007 highs with the exception of the Nasdaq 100. This means that with the exception of the Nasdaq that on a long term basis the indexes are making lower highs and this is a bearish set up. For this reason the Nasdaq 100 remains the most bullish of the indexes.

The German Dax is probably the weakest of the indexes at present as it is the only index that moved below the lows of the prior week and we’re now looking at the next support target around 5270.

We wrote last week about the VIX and the proximity of current volatility to the second quarter of 2010 at 48.20. This week saw the VIX rise to 45.40, which is still a very high reading and reflects a lot of fear present in the markets.

Commodities

Crude oil resumed the downtrend and the October contract declined 3.83% for the week and the $75 level will remain the downside target.

Irrespective of the increased margin requirements imposed by the CME, Gold’s rise c ontinues unabated and Silver has also broken out of the recent range once again, having also been subject to earlier margin increases and the trend for metals overall remains bullish. Gold registered a new all time high at 1881.4 on the December contract on Friday although the market did come considerably off that by Friday’s close. It’s worth noting that on the December contract that Gold opened the month at $1622 and now just 3 weeks later we stand at 1852.2!

Currencies

The dollar index drifted lower once again with the September contract at one stage trading at its lowest level in some 16 weeks and only marginally above the May lows at 7332, which continues to be the next downside target.

The dollar fell to its lowest level against the Japanese yen since the second world war and the markets will certainly be on the lookout for a move from the Bank of Japan this week to weaken the Yen.

Interest rate futures

Interest rate futures continued higher with yields falling to 60 year lows although there are signs on the 10 year T Notes that the market is wavering at these levels as there have been a couple of long higher shadows on the daily bars, which indicate the higher levels being rejected, as well as a doji pattern on Friday’s candle, which although not a reversal pattern in and of itself does reflect indecision and is often a precursor to a reversal. The trend remains up across the sector.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 15th August 2011

It’s been another very dramatic week in the markets, which has once again seen volatility spike higher and seen some of the largest daily swings in the stock indexes. The early panic for stocks sent them tumbling lower but go on to make partial recoveries by the end of the week. The trend continues to be down for stock indexes. The trend also continues to be down for the US dollar and is still mixed for commodities.

Stocks

Over the past couple of weeks we have been writing about the large head and shoulders top formation on the S&P 500 and the likely downside target of 1125. That target was hit and exceeded this week and included a one-day decline of 6.66% for the S&P, which was the largest daily decline since the Lehman collapse in 2008. We then saw the September contract fall to 1076.2 on Tuesday before mounting a rec overy of 4.74%, which was the biggest one-day gain since 2009. Moves of this magnitude are clearly not the norm and volatility may remain high in the short term so we may see further wild swings in the week ahead. The VIX rose to 48 on Monday, which was the highest reading since the second quarter of 2010, and just shy of that high at 48.20. To see higher VIX levels than 48.20 we need to look back all the way to the March 09 highs, which coincided with the March 09 stock market lows.

The trend still remains down for the S&P 500 and we may now have seen a major top in this market at the April highs. Volatility may remain high in the short term so we may see further wild swings in the week ahead.

Commodities

September Crude declined all the way to $75.11, which is the preferred OPEC level of $75. We then saw a strong rally but the black gold was still down for the week and the trend re mains down.

December gold rose to new all time highs this past week, clearing $1800 for the first time. The CME then changed the margin requirements and some selling followed. Irrespective of this the trend is still very much up and the long-term trend still only looks to be heading in one direction.

Currencies

We wrote last week “As a general rule, the dollar comes into favour during times of crisis. This is primarily because it is the world’s reserve currency and is perhaps erroneously viewed as a safe haven.” The dollar benefited early in the week from all of the panic that was evident in many markets and moved higher on its perceived safe haven status. Then dollar strength reversed as the equity markets rallied. The dollar index traded within a relatively tight trading range considering all the volatility elsewhere. The higher risk currencies of Australian, Canada and New Zealand all suffered early in the week but there was some recovery seen by the end of the week.

Interest rate futures

Interest rate futures continued higher early in the week as yields fell to new record lows after the Federal Reserve pledged to keep interest rates at record low levels for another 2 years. Yields did however rise towards the end of the week as an auction of 30 year Treasuries was not well received and prices subsequently fell. The trend however remains up across the sector.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 8th August 2011

In last week’s update we wrote “It is in reality a joke that the US still holds this status as their debt levels are already beyond the point of no return and the fact that the US still holds the triple A rating shows how much of a joke the rating agencies are.” This weekend has seen the S&P downgrade the US from their triple AAA rating for the first time in history. This may have a considerable effect on global markets over the coming months and other rating agencies will likely follow suit and possibly begin downgrading other Countries as well.
It’s been a very dramatic week in the markets, which has seen volatility spike higher and stocks move lower, falling to the new levels of the year. The trend for stock indexes is now down. The trend also remains down for the US dollar and is mixed for commodities.

Stocks

We wrot e last week “The current formation on the S&P 500 is of a very large head and shoulders pattern. We may see move lower towards the neckline of the pattern and key support around 1250 on the September contract. If that level is reached and support taken out we may see a further decline all the way to the 1125 to 1150 area, approximately 140 to 165 points lower than Friday’s close.” When writing that I did not expect that we would fall almost to that target within the next week but that’s not far short of what happened as the S&P 500 fell to 1163.5 on the September contract before mounting a partial recovery on Friday. Perhaps significantly the market closed below 1200. Other indexes were also sharply lower.

Commodities

We indicated last week that the $90 level would be watched closely as it represented the lower end of the short term trading range and this level was tested and support ta ken out, leaving Crude with a heavy decline for the week.
December gold added 1.26% for the week and reached new all time highs yet again, this time at $1684.9 before falling back to the close on Friday at $1651.8. Silver did not fare well and ended the week lower, falling below the $40 level. The trend for silver looks as though it is in danger of coming to an end, at least for now as short term support is well within range.

Currencies

As a general rule, the dollar comes into favour during times of crisis. This is primarily because it is the world’s reserve currency and is perhaps erroneously viewed as a safe haven. This has been the case for quite some considerable time but is not so much the case now. Previously the chaos and panic selling seen in the markets would have led to a sharp rally for the dollar and whilst the dollar has rallied against several majors, the gains for the week wer e perhaps less than many would have expected.
The dollar index fell just short of declining to our short-term downside target at 7330 and recovered a bit but still ended the week down. The dollar has fallen to all time lows or multi year lows against several currencies this past week, underlining how bad the plight of the dollar actually is.
We also wrote last week “Another popular safe haven currency is the Japanese Yen, which has continued to climb of late and is now at levels last seen when the Bank of Japan intervened to prevent the Yen from appreciating further. Further intervention may follow this week from the BOJ.” This week saw intervention once again from the BOJ, right on cue and this weakened the Yen initially but Friday did see another gain for the yen. One wonders how long the BOJ will be able to keep intervening but for now this looks as though it may continue around the 7700 dollar/yen level. The Swiss national bank also intervened to weaken their curre ncy, dropping rates to zero. The impact of this was short lived and the Swiss Franc still ended hitting new all time highs.

Interest rate futures

Interest rate futures rallied sharply at the beginning of the week as the long-term uptrend continues and rates continue to fall to new lows for the year. Friday did see some weakness though with Bear sash reversal patterns being seen on the daily charts for the 10 year T note and 30 year Bond. What happens this week will be very interesting to see as the markets grapple with the US downgrade.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 1st August 2011

All the focus will be on the US debt debate relating to raising the US debt ceiling in order for the US to avoid default and lose their AAA credit rating. It is in reality a joke that the US still holds this status as their debt levels are already beyond the point of no return and the fact that the US still holds the triple A rating shows how much of a joke the rating agencies are.

Stocks and the dollar have continued to edge lower whilst commodities remain mixed. Events from across the pond later today when the US senate votes and later this week will likely give a clearer perspective on future market direction. Some big moves may be on the cards.

Stocks

The S&P 500 reversed, having failed to clear 1354.5 and sold off sharply, taking out support at 1290 and bringing the current bullish run to an end. The current for mation on the S&P 500 is of a very large head and shoulders pattern. We may see move lower towards the neckline of the pattern and key support around 1250 on the September contract. If that level is reached and support taken out we may see a further decline all the way to the 1125 to 1150 area, approximately 140 to 165 points lower than Friday’s close. To the flipside of that argument, head and shoulders patterns have the habit of failing as so many people look at them so we may see a bounce higher from the neckline should the market decline that far. For now the long term trend remains up for US stock indexes.

Commodities

Crude once again failed to clear the $100 level on a closing basis and failure this time led to a move lower, culminating in a weekly loss of 4.18%. In the very short term the current range spans approximately $10, from $90 to $100. Both levels will be watched closely.

December gold added 1.71% for the week and reached new all time highs yet again, this time at $1637.5. Silver did not for once follow gold’s lead higher and ended the week roughly flat narrowly holding on to the $40 level.

Currencies

The dollar index fell just short of declining to our short term downside target at 7330 and recovered a bit but still ended the week down. The dollar has fallen to all time lows or multi year lows against several currencies this past week, underlining how bad the plight of the dollar actually is.

As we wrote last week, we still have the unusual position of high risk currencies like the New Zealand and Australian dollars being in strong demand at the same time as the Swiss Franc also hitting new all time highs. The Swiss franc is very much a safe haven currency. Another popular safe haven currency is the Japanese Yen, which has continued to climb of late and is now at levels last seen when the Bank of Japan intervened to prevent the Yen from appreciating further. Further intervention may follow this week from the BOJ.

Interest rate futures

In spite of the debt debate going on in the US, interest rate futures have continued to advance and yields continued to decline, so treasury markets certainly don’t think there will be any chance of default and price in an expected agreement to raise the debt ceiling higher, a situation that will likely happen today. As well as this, there has been further poor economic data coming out of the US, so the prospect of QE3 is very much on the table, which will likely benefit treasurys but spell further trouble for the US dollar.

Kind Regards

Robert Stewart