LS Trader Weekly Update – Monday 24th October 2011

Stocks have continued their recent short-term strength while commodities have for the most part continued lower although there are exceptions. The dollar ended the week lower for a third straight week but the moves seen in the currency markets have been far from convincing. Long-term trends remain as before, up for the dollar and down for stocks and commodities.

Stocks

We wrote last week that a break above 1230 on the S&P 500 would be short term bullish and we got that this week and may now see further strength towards the 1250 1260 area. That said, a second close above 1230 would really be required to confirm this breakout as the market could easily pull back to within the recent range and head lower once more, in the direction of the long term trend which is down.

The Nasdaq 100, which has been leading the way of l ate for stocks actually ended the week lower. It still remains the closest to its highs of the year out of all of the indexes and the only one likely to give a change of trend to up in the short term. Generally when stocks are strong the Nasdaq 100 leads the way but with last week’s action being down, the Nasdaq remains below short-term resistance so it is not leading in the short term.

Commodities

Gold tested the $1700 resistance level that we wrote about last week and was unable to clear it. The long-term trend remains up for now as gold remains the only one of the metals still in a long term uptrend following recent weakness. Silver has also continued to struggle with resistance, in this case around 3300 and remains in a long-term downtrend.

Currently, the most important of the metals is copper, which this week moved down to test the recent lows and the crucial 30000 level. Friday did see a decent move for copper, with a bull sash pattern. A bull sash is a very short-term reversal pattern but the trend and momentum is still down for copper. A break below 30000 support may be significant not only for copper but for commodities on the whole, which may follow copper lower on a break down through support.

Currencies

With the exception of the Japanese Yen, the long-term trend is down for all major currencies against the dollar. The dollar index ended a third straight week lower but the trend remains up. The index is currently at a fairly important short-term support level, as we have written about recently at 7650 on the December contract. As before, there are numerous markets that are grappling with resistance levels and some currencies have also been relatively flat over the past week, which may indicate that the recent short-term dollar weakness is coming to an end. Whether t he markets can clear the resistance levels will likely set the tone for the coming weeks in the currency markets.

Interest rate futures

Interest rate futures were higher across the board as the long-term uptrend remains intact. In the short-term interest rate markets have been weak but have found some support from the prior week’s lows. If the support levels are taken out there is considerable room to the downside but some decent moves will be required for a change of long-term trend.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 17th October 2011

The reversal from 1 year lows formed during the previous week continued this week and the markets are now approaching key resistance levels, as in fact are many markets including commodities and currencies. The past couple of weeks’ moves have been counter to the long term trend and the long term trends all remain intact, so still down for stocks and commodities but up for the dollar.

Stocks

The trendline that we wrote about last week around 1175 gave way, as did the 1200 level as the strong 2 week rally continues. The S&P 500 has yet though to clear crucial resistance at 1230, which may well be the critical level and decider for what may happen to the markets on the whole over the next few weeks. A break through 1230 would undoubtedly be bullish short term and may lead to a move higher towards 1250. The trend however still remains down and will continue to be so for the foreseeable future. Considerable further strength will be required for a long-term change of trend for stock indexes. The exception to that is the Nasdaq 100, which continues to be the leader and may well test the highs of the year in the coming weeks. Whether those highs can be taken out remains to be seen.

Commodities

Commodities for the most part were higher over the past week but the trend for most remains down. Gold, one of the commodity markets that has remained in a long term uptrend, rose by 2.89% for the week but is still chart-wise in a consolidation pattern and remains below the $1700 level. Silver is following a similar pattern and continues to struggle with the 3300 area. The trend for silver remains down.

One sector that has continued to do well is agricultural commodities and especially the cattle markets, all of which are h igher and are approaching multi-month highs. If these levels can be cleared there could be further decent advances in this sector.

Currencies

The past 2 weeks has very much been about dollar weakness and has seen two strong weeks for the other currencies, which are counter to the long-term trend. The dollar index has fallen to its lowest level in a month and is now approaching a good support area. Considering the strength and extent of the moves seen in such a short period, a bounce for the dollar would not be surprising. Several currencies are heading towards resistance areas so whether we seen a continuation of short-term strength for these markets or whether the moves stall and reverse remains to be seen. With the exception of the Japanese Yen, the long-term trend is down for all major currencies against the dollar.

Interest rate futures

The long-term trends remain up for the interest rate futures sector with the exception of the 3-month Eurodollar. Longer term rates were lower after a decline for the week of 2.06%. The 5 & 10 Year T notes were also lower but both had been lower during the week before a partial recovery by weekend.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 10th October 2011

The past week saw new 1 year lows for the stock market, followed by a sharp rally for most of the week, which only ran out of steam on Friday. As ever the inverse relationship between stocks and the dollar is still in play, but not as much as normal. Such a move in stocks would normally correlate with a much larger down-move for the dollar, but the dollar ended the week down but not significantly so.

The long-term trend remains down for stocks indexes and commodities overall but it remains up for the dollar almost across the board.

Stocks

The S&P 500 initially fell to its lowest level in a year before making a strong recovery and ending the week ahead by 2.57%. The long-term trend however remains down and the market failed to clear the downward sloping trendline on Friday. Of interest is the spinning top pattern on t he daily chart which represents indecision and a possible turning point, with the high of the day running into resistance at the trendline. Although you’d never place trades based on this information, on a historical basis Monday and Tuesday of next week are normally bearish so it will be interesting to see the markets reaction and whether the trendline holds with resistance around the 1175 level on the December contract.

The VIX almost made it as high as our 4800 target but then moved sharply lower as stocks rallied, ending the week lower by some 15.47%. Moves such as this have been typical on the VIX for the past couple of months, so even volatility is volatile! As we wrote before, if 4800 is eventually taken out taken out we could see levels of fear in the markets not seen since the 2008 crash and such a move would correlate to a sharply lower stock market.

Commodities

The grains sect or continues to be very weak, with some grains markets falling to their lowest levels in a year. The entire grains sector is now in a long term downtrend with the exception of Rough rice. Weakness in this grains sector is being led by soybeans, which has taken out and closed below long- term support.

The metals sector remains weak overall even though we have seen some upmoves over the past week. Only gold remains in a long term uptrend, but even gold is effectively moving sideways before the next directional move, which by looking at the current chart formation is likely to be down.

We wrote last week that Copper may decline as far as 28400 if support at 30000 could be taken out. The 30000 level was tested and support found, leading to a rare up week for the metal, which had been in decline for the previous 5 weeks.

Currencies

The US dollar was lower, albeit not by a great deal, a lmost across the board. Of interest though is that the rally for other currencies for most of the week ran out of steam on Friday, with several markets printing reversal candles, such as shooting stars on the Aussie and Euro and hammers on the Dollar/Canadian and dollar index. If these patterns are good for a reversal the week ahead promises to be interesting.

Interest rate futures

We had written a few weeks back that 10 year yields would not likely move lower than 1.70 and that was almost exactly the bottom. Since then yields have risen in the interest rate futures sector which has sent prices lower. The long-term trend remains up with the exception of the 3 month Eurodollar and as we have suggested before, there is a possibility of a spike higher in interest rate futures yields, which may lead to an eventual sharp decline in this sector.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 3rd October 2011

It would be safe to say that fear has returned to the markets and that we are overall seeing a risk-off strategy being employed by many market participants and this is leading to many markets selling off sharply and entering bear market territory. The main exception is the US dollar, which as we have suggested recently would benefit from stock market weakness and its perceived safe haven status.

The long-term trend remains down for stocks indexes and is also down for nearly all commodities but it remains up for the dollar almost across the board.

Stocks

We have been writing for several weeks about the seasonal September weakness for the stock indexes and in particular the S&P 500 and we have once again seen this tendency appear. The December S&P 500 contract opened the month at 1211 and closed out the month at 11 26 for a fairly hefty down-month and it could have been considerably worse as the index had been as low as 1102 earlier in the month but support around 1100 held firm. Weakness on a seasonal basis can often continue through to the end of the first week of the month and beyond.

The VIX ended the week ahead by 4.15% and is looking to be in a very bullish pattern formation that could lead to a spike higher. A move above 43.87 would likely bring a test of the 4800 level and if 4800 is taken out we could see levels of fear in the markets not seen since the 2008 crash where the VIX actually topped 8000. Such a move would correlate to a sharply lower stock market. Whilst I would personally never place any trades based upon what the VIX is doing it is worth keeping an eye on.

Commodities

Commodities price action over the past week can be briefly summed up with one word, “sell”. This seems to be the case with virtually every commodity market at present and many are being sold off sharply in a trend that looks set to continue. Even George Soros sold his Gold this week and gold has held up better than many commodities and still remains in a long-term uptrend!

Perhaps the most important of these markets as far as the economy is concerned is our old friend Dr Copper, known for taking an accurate pulse of the economic climate. At present, copper is giving a sell signal not just in its own market but also for the global economy and the past week has seen another sharp move lower, as well as a new low close on Friday for the move. A continuation lower towards 28400 may follow if 30000 can be taken out.

Currencies

Our comments from last week about the dollar still very much apply and it continues to be the beneficiary of the current global financial crisis and its perceived safe haven s tatus. But as we have written many times before, since the other safe haven currencies of Japan and Switzerland are both being devalued by their respective central banks, the dollar will likely continue to rise as the global economic crisis deepens over the coming months.

The reverse is true obviously of the higher risk commodity based currencies of New Zealand, Canada and the ultimate risk currency, the Australian dollar. All of these 3 currencies were lower over the past week as risk continues to be shunned.

Interest rate futures

We wrote last week that we may be approaching a top for interest rate futures and were looking for 10 year yields to find support around 1.70 and they did before moving higher. The 10 year notes have just about held on to support but things are getting interesting in this sector as there appears to be limited upside.

Although clearly still in a long ter m uptrend, 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