LS Trader Weekly Update – Monday 26th September 2011

In a week that has seen the global financial crisis come to the fore once again, stock indexes failed to clear resistance and headed sharply lower as the dollar moved higher. Commodities were also sharply lower almost across the board and these are trends that are likely to persist for the time being, although nothing ever moves up or down in straight lines and there will always be corrections and bear market rallies along the way.

The long term trend remains down for stocks indexes and is now down for most commodities but is now up for the dollar against nearly all of the majors.

Stocks

In last week’s update we wrote “So far this year the seasonal September weakness has not come to the fore but we may yet see the September selling rear its head. The S&P 500 is currently flat for the month so if the record of being t he worst month of the year for the S&P 500 is going to pan out this year there will have to be some considerable weakness before month end from here. For now it looks as though resistance around 1220 may be tested and the market’s reaction at that level will be a good indicator of short term action.” Short term resistance at 1220 was nearly tested before a steep sell off returned the indexes to bear market territory.

The VIX soared 33.15% for the week, bouncing higher from the support area just above 30 and closed the week out at 41.25 as fear returns to the market.

The Dax did not quite fall to the prior week’s lows at 4971, bottoming for the week at 4980 but we may still see a move towards the next support target around 4600 a bit further out and the trend still remains very much down.

Commodities

Last week we wrote “Further gold weakness has increased the possibility that w e have seen a major top as indicated by the possible double top formation. If dollar strength does resume then this would add further pressure to gold”. The double top pattern was confirmed this week with a breach of the low point between the 2 highs, which in this case was the low of the hammer pattern at $1705. We can therefore subtract the low of $1705 from the high of $1923 to give $218, which when subtracted from the low at $1705 gives a target of $1487 for Gold. For now though the trend remains up for gold although it is down for the other metals in the sector.

Last week we also wrote “Crude continues to grapple with the resistance at $90 that we have been writing about for several weeks and appears as though it may be winding up for a decent move in the not too distant future. The short-term range on Crude therefore still spans some $15, from $75 to $90.” Further failure to clear $90 led to a big move as suggested, a decline of 9.45% for the week. The next targ et will be the $75 and the $70 level, although steeper declines may follow further out.

Currencies

The dollar resumed its recent uptrend and continues to be the beneficiary of the current global financial crisis and its perceived safe haven status, which is somewhat ironic considering that it is effectively a fiat currency. But as we have written many times before, it is only the fact that it is still the world’s reserve currency that it has safe haven status. The other safe haven currencies of Japan and Switzerland are both being devalued by their respective central banks, leaving the dollar as the only viable alternative, and it will likely continue to rise as the global economic crisis deepens over the coming months.

Interest rate futures

The trend remains bullish for interest rate futures but we still may be a pproaching a top. 10 year yields will likely find support around 1.70, which is pretty much the high price point equivalent on the charts seen last week and we may see a move lower from there. We still see interest rate futures as being a likely candidate for a very steep decline over the next few years.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 19th September 2011

Stock indexes had a good week after initial weakness saw them first head lower before making a good recovery. The long term trend however remain down for stocks indexes. The dollar was also lower for the week but had seen some swings in some major pairings before ending lower and the trend remains mixed for commodities.

Stocks

So far this year the seasonal September weakness has not come to the fore but we may yet see the September selling rear its head. The S&P 500 is currently flat for the month so if the record of being the worst month of the year for the S&P 500 is going to pan out this year there will have to be some considerable weakness before month end from here. For now it looks as though resistance around 1220 may be tested and the market’s reaction at that level will be a good indicator of short term action.< br>
The VIX made a sharp weekly decline of 19.57%, which included 5 down days in succession as stocks rose and now finds itself at the major 30 support area.

We wrote last week that the Dax would likely target the obvious round number at 5000 and that we could expect some support around that level and that is exactly what happened. The December contract initially moved as low as 4971 before finding support and ending the week ahead. We may still see a move towards the next support target around 4600 a bit further out and the trend still remains down.

Commodities

Further gold weakness has increased the possibility that we have seen a major top as indicated by the possible double top formation. As we wrote last week this is not confirmed as yet and for it to be an actual double top the low point between the 2 highs must be taken out, which in this case is the low of the hammer pattern j ust above $1700. If dollar strength does resume then this would add further pressure to gold, but for now the yellow metal is just about holding on to the $1800 level and the trend remains up with the market above support.

Crude continues to grapple with the resistance at $90 that we have been writing about for several weeks and appears as though it may be winding up for a decent move in the not too distant future. The short-term range on Crude therefore still spans some $15, from $75 to $90.

Currencies

The dollar ended the week lower having begun the week on strong footing and continuing the recent uptrend from prior weeks. Strength evaporated and the dollar index ended lower by 0.81% having earlier been at its highest level since February.

The Euro was as ever the inverse of the dollar index, having begun the week sharply lower, falling all the way to $1.35 before recovering and ending the week ahead by 0.94%.

The Pound was one of the majors that actually ended the week lower, and fell to its lowest level since early January and now may potentially fall as low as $1.53.

Interest rate futures

Interest rate futures retreated as stocks and riskier assets advanced. The trend is still bullish in the interest rate futures sector but the markets may be headed for a test of short term support. Only the 3 month Eurodollar managed a gain in this sector and that was by a miniscule amount.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 12th September 2011

The past week was a shortened trading week due to the US Labor Day holiday. As we wrote last week, this holiday is often followed by some strength for stock indexes early in the week but that often runs out of steam relatively quickly, and that’s exactly what happened with some strength being seen up to mid-week followed by a continuation of prior weakness.

The past week was an eventful one on several counts due largely to the unprecedented intervention by the Swiss National Bank to weaken and peg their currency and this led to some huge moves in the forex markets, with the US dollar as the prime beneficiary. These moves have begun to shift the long term trend in favour of the US dollar. The long term trends remain down for stocks and mixed for commodities.

Stocks

As we wrote in last week’s update, “September is historic ally the weakest month of the year for stock indexes on a seasonal basis but the month can often start on strong footing after the Labor Day US holiday, which is this Monday. Weakness often gets underway towards the latter part of this coming week and into the following week.’ As mentioned in the introduction, this is exactly how the week panned out, and after a reasonable start to the week the S&P 500 ended lower and may now continue lower towards the recent lows.

We also wrote last week about the German Dax and that we expected the index to continue lower to target the next support level around 5270, and this target was hit and then exceeded as the Dax fell 6.42% for the week. The Dax has now been lower in 6 of the past 7 weeks. The next target will be the obvious round number at 5000, where we can expect some psychological support especially in view of the extent of the recent decline. Further out we may see a move towards the next support target around 4600.


Commodities

Last week wrote that we may see another go at all time highs in the weeks ahead and we did in fact briefly see new all time highs during the past week. New all time highs now stand on the December contract at $1923.7. Following the new all time highs the market did sell off in quite a sharp 2 day move before finding support and moving higher once again.

There is however a possibility of a double top formation on Gold following this recent rejection at very similar levels to the prior high. This is not confirmed as yet and for it to be an actual double top the low point between the 2 highs must be taken out, which in this case is the low of the hammer pattern just above $1700.

Crude has had a couple of attempts at pushing out of the range and has moved briefly above the $90 level but has been unable to stay there and has subsequently moved back within the range. The shor t-term range on Crude therefore still spans some $15, from $75 to $90.

Currencies

The dollar index shot higher over the past week as the Euro and Pound fell and the Swiss Franc made a huge one day move following an unprecedented intervention by the Swiss National Bank to weaken the Franc. In the long run this will be a terrible decision by the SNB as they will ultimately end up buying back all the other currencies that they have bought at a substantial loss that will probably run into the billions. It seems that policy setters around the globe are uniform in the fact that they completely fail to understand economics and the long term impact of their actions. Whilst in the short term this intervention may have the desired effect, in the long run the market is larger and will go where it wants to go.

Interest rate futures


Interest rate futures continue to press higher as yields remain at or near historic lows. The long-term trend remains up across the sector. How much further room there is to the upside remains to be seen but as yet there is little in the way of reversal signals to indicate that the trend is coming to an end.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 5th September 2011

This coming week is a shortened trading week due to the US Labor Day holiday and US markets will therefore be closed. This holiday is often followed by some strength for stock indexes early in the week but that often runs out of steam relatively quickly.

Stocks

We wrote last week that if the S&P 500 could clear 1200 that we may see some further short term strength, and we did. It was however relatively short lived and the S&P 500 came up short of the 1250 level which many may have been looking for it to reach as a minimum. On Thursday we saw a bearish engulfing pattern and continuation lower again on Friday. The weekly charts show a large shooting star patter, which is bearish.

September is the historically the weakest month of the year for stock indexes on a seasonal basis but the month can often start on strong footing after the Labor Day US holiday, which is this Monday. Weakness often gets underway towards the latter part of this coming week and into the following week.

We also wrote last week about the German Dax and it’s continued weakness and further weakness was seen during the past week, which included Friday’s 3.19% decline on the September contract. We continue to target the next support level around 5270.

Commodities

Following the huge volatility and large decline for Gold seen during the previous week, normal service resumed this week and Gold ended the week ahead by 4.43% and we may well see another go at all time highs in the coming weeks, currently at $1917.90 on the December contract, not all that far from Friday’s $1876.9 close. As we wrote last week, the hammer pattern formed on the 25th august should provide good support.

The current short-term range on Crude still spa ns some $15, from $75 to $90 as resistance at $90 just about held this week and Crude moved lower again from Thursday’s highs at $89.90. A break of either level could be good for a decent move in the direction of the breakout. For now the trend remains down.

Currencies

The dollar index gained 1.31% for the week as the index continues to find support from the recent lows around 7350. The index may yet push higher towards the next resistance levels around 7560 but the trend remains down.

The British Pound declined for a second straight week and now looks set to test support from both the recent lows and a long rising trendline on the weekly charts.

Interest rate futures

Interest rate futures rose for the week as yields declined once again. The 10 year note is now close to it’s recent all time high and strong resistance can be expected at current levels. The sector as a whole continues to remain near the highs of the year and the long-term trend remains up across the sector. How much further room there is to the upside remains to be seen.

Kind Regards

Robert Stewart