LS Trader Weekly Update – Monday 28th November 2011

The past week was a shortened trading week due to the US Thanksgiving Holiday and it was a negative week for stocks and commodities but a bullish week for the dollar.

The long-term trends remain in place, and are down for stocks and commodities, and up for the dollar and interest rate futures.

Stocks

For the past couple of weeks we’ve been writing about the bearish pattern formation in stocks and the S&P 500 and have been focusing on support around 1200 and 1180. Both levels were taken out this week and that may well open the door towards the lows around 1068.

We’ve also been writing about the rounding top and head and shoulders pattern that had formed on the Nasdaq 100 and suggested that these pointed to a move lower to 2150. That’s exactly what happened this week as the Nasdaq continued lower to reach a low of 2136 before closing at 2147.5. There is still further room to the downside with little in the way of support until 2035.

Last week we wrote “One thing to be considered is that the week in the build up to Thanksgiving is normally bullish, although I don’t think seasonality is never a strong enough reason by itself to either take or not take positions. It’s far more important to follow the trend and the chart structure.” This turned out to be correct as this past week was the worst Thanksgiving week for stock indexes since 1932. Yet another reason to avoid seasonal trades.

Commodities

Gold has continued to back off from $1800 and in the short term at least the uptrend is over. For now the long term trend still remains up but this is the only metal that that statement holds true for so we may see further gold weakness and a change of long-term trend.

As we wrote last week, Crude h as also continued some short term weakness and still looks to be headed towards short term support around the $95 level, not far from Friday’s close. If last week’s lows get taken out then it may be a swift move down towards $90 but for now the trend is up.

The weakest sector of commodities has been the grains, all of which are in long-term downtrends and trending nicely lower.

Currencies

As we wrote last week, the long-term inverse relationship between stocks, commodities and the dollar still remains intact. We also wrote that a break above 7850 would likely lead to a move towards 8000 and 7850 was taken out decisively. 8000 and the October high at 8043 on the December Dollar index will be the next targets.

Overall it’s been a bullish week for the dollar with gains across the board, even against the Yen, the one market against which the dollar is still in a long-term downtrend.


Interest rate futures

Interest rate futures continue in a long-term uptrend with the exception of the 3-month Eurodollar, which is trending down nicely. The longer-term interest rate futures are still in an uptrend but all are running into resistance. Followers of candle patterns will know that each of these markets has been printing reversal patterns for the past week or so at resistance so these markets are certainly struggling to push higher with yields still near to record lows. Each of the 3 longer-term markets that we trade at LS Trader printed bear sash patterns on Friday, which are bearish reversal patterns. Whilst we would not trade these as short entries as that is counter trend, it does indicate the upside momentum is waning and that the uptrends may be coming to an end soon.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 21st November 2011

The week ahead will be a shortened trading week due to the US Thanksgiving Holiday on Thursday. US markets are closed on Thursday and Friday is a shortened trading Day.

Last week we wrote that many markets were in trading ranges are were approaching support/resistance levels and that there could be several breakouts, and we saw that this past week and the same still applies for the week ahead as more key levels look set to be tested.

The long-term trends remain in place, and are down for stocks and commodities, and up for the dollar and interest rate futures.

Stocks

We wrote last week about the triangle that the S&P 500 had formed as well as the wider trading range between approximately 1200 support and 1300 resistance and said that those levels would be the levels to watch for a breakout. Over the past week t he S&P 500 broke out of the triangle to the downside, in the direction of the long-term trend but has yet to breakout of the wider range. This range now spans to the lows of last week, which if taken out would suggest a move to 1180. Below 1180 there is a lot of room as the next key support area would be all the way back to 1068, the October lows. Therefore last week’s lows and 1180 are the areas to focus on in the week ahead.

Last week we also wrote that the Nasdaq 100 was forming a rounding top, which could even be considered to be a mini head and shoulders top. The market since went on to break the neckline of this pattern and this may lead to a move lower towards 2150.

One thing to be considered is that the week in the build up to Thanksgiving is normally bullish, although I don’t think seasonality is never a strong enough reason by itself to either take or not take positions. It’s far more important to follow the trend and the chart structure.

Commodities

Gold has shown some signs of weakness this past week and has pulled back from the $1800 level, which it was unable to clear. The yellow metal remains the only market in the sector to be in a long- term uptrend but is now showing signs of short-term weakness.

Crude shot higher earlier in the week, pushing well through the $100 level. January Crude actually hot $103.37 but then sold off late on Thursday and Friday, moving back below $100. The trend remains up but the market may continue to pull back towards the $94 support area.

Currencies

The long-term inverse relationship between stocks, commodities and the dollar still remains intact. This past week saw the dollar index, which is a basket of currencies against the dollar; continue its recent advance, adding 1.46% for the week. We wrote last week that a break above 7850 for the index would be bullish and that level was tested last week but so far the index has not pushed on to the next target around 8000. The long-term trend remains up for the dollar index as it does for the dollar against most of the majors.

Interest rate futures

Interest rate futures were higher for the week with the exception of the short term 3 month Eurodollars, which continued their decline this week. Longer-term markets pushed higher, with the most strength being seen in the 30 year T bond. The long term trend still remains up in this sector but as before with yields very near to all time lows there may be a limit as to how much higher these markets can go.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 14th November 2011

The long-term trends still remain intact across the 4 primary sectors of stocks, commodities, forex and interest rate futures but many markets are in short term ranges and possibly on the verge of breakouts. Currently these trends are down for stocks and commodities, and up for the dollar and interest rate futures.

Stocks

We wrote last week about the range on the S&P 500 between approximately 1200 support and 1300 resistance and that those levels would be the levels to watch for a breakout. Over the past week the S&P 500 has remained in that range but it has now begun to tighten somewhat and form a triangle pattern. This means that price action is tightening and that when we get an eventual breakout it may lead to a decent move in the direction of the breakout.

One of the reasons for that is that there are now lo wer highs and higher lows, and a breakout will take out that pattern. However, even if the triangle is taken out, the primary resistance still remains at 1300, with support at 1200, so the market will have to take either of those levels out as well before we can have a decent directional move. For now the long-term trend remains down, so even though the market is nearer the upper end of this range, the odds favour a breakout to the downside.

The Nasdaq 100 is forming a rounding top, which is bearish and could even be considered to be a mini head and shoulders top. This would obviously be negated should the market take out the highs and resistance at 2430. The long-term trend here remains down and with the aforementioned patterns is potentially bearish in the short term, but the market needs to break short-term support, or the neckline, for confirmation.

Commodities

Gold this week finally cleared resistance around $1750 and pushed on higher, almost to $1800. The long-term trend still remains up for gold, the only metal that still remains in a long-term uptrend.

Crude has also pushed higher following last week’s breakout and may now be heading higher towards psychological resistance at $100. The long-term trend still remains down for the energy sector on the whole, but heating oil has also been moving up nicely along with Crude and may be on the verge of a long-term change of trend.

The grains markets have remained very bearish, with even the most bullish market of the grains sector, Corn, failing to take out resistance. Corn is now moving towards the lower end of the recent range. The soybeans sector has been particularly weak, with Soybean Meal falling to its lowest level since late 2010 and the other beans markets heading for the lows of the year.

Currencies

The dollar index has remained in a short-term consolidation, but short-term support around 7650 continues to hold and this is bullish as long as it does. A break above 7850 would likely lead to a move towards 8000 and such a move would be bearish for stocks and commodities. However, if 7650 support does give way then a move towards the 7500 level may follow but for now the trend remains up.

Interest rate futures

Interest rate futures all moved lower this week and we now have all 4 markets that we track at LS Trader moving lower, from the short term 3 month Eurodollars, all the way through to the 30 year T-bond. We wrote last week that with yields very near to all time lows there may be a limit as to how much higher these markets can go, and last week’s action failed to take out the recent highs. To say that a top is in for this sector may be premature and the long-term trend still remains up for t he sector.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 7th November 2011

The past week has bucked the recent short-term moves, which were against the long-term trend, to resume direction in the direction of the primary trend. These primary trends are still down for stocks and up for the dollar. Commodities still remain mixed but for the most part are still in long-term downtrends. The inverse relationship between stocks and the dollar continues.

Stocks

We wrote last week about the candle pattern formation that suggested indecision and also confirmed resistance at 1300 and we got follow through from that pattern on Monday with a tall red candle, which is a big selling day, to complete the evening star formation as we suggested may happen. An evening star in an uptrend at resistance is a bearish reversal pattern and this move pushed the S&P 500 lower, although it did recover somewhat from the lows of the week. Clearly resistance is in place at 1300 and there is some support around 1200 so that remains the range to watch for the week ahead.

Commodities

Gold cleared resistance around $1750 but as yet has failed to push on higher. The long-term trend still remains up for gold, the only metal that still remains in a long-term uptrend.

Crude has begun pushing higher again and may now edge higher towards $100 but the long term trend overall for the energy sector remains down, as it does for most commodities.

Currencies

The past week has been a resumption of the long-term trend, with the US dollar gaining against all of the majors. It has also been a volatile week with some large moves seen in many markets. The reversal of prior weakness for the dollar and the extent of last week’s move is amply highlighte d by the huge bullish engulfing pattern seen on the weekly chart of the dollar index. The weekly patterns in several of the major pairs are reversal patterns, all of which favour the US dollar, as does the long term trend.

We wrote last week about the likelihood of intervention from the Bank of Japan to weaken the Yen since it had pushed once again to all time highs and the BOJ did intervene on Monday, possibly with as much as 80bn. This move pushed the dollar higher and even exceeded the 7800 level that we mentioned last week. The long tern trend still however favours the Yen.

Interest rate futures

Interest rate futures reversed recent short-term weakness and started pushing up towards the higher end of the recent range. The 5-year T note in particular has pushed up to within touching distance of all time highs. However, with yields very near to all time lows there may well be a limit a s to how much higher these moves can go.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 31st October 2011

The past 3-4 weeks have been a similar story, with stocks continuing to rally, while the dollar has declined. Commodities remain mixed but for the most part are still in long-term downtrends. As summer comes to a close we enter what is seasonally a bullish time of year for stocks but following the strong October rallies it remains to be seen how much is left to the upside.

Stocks

We wrote last week that we may see further strength towards 1250/1260 on the S&P 500 and the market reached that level and then continued further, with the December S&P 500 reaching 1288.8 on Thursday before pulling back slight to Friday’s close. The large move higher on Thursday was followed by a small real bodied candle which may represent some indecision at the current level, particularly with the 1300 resistance level in sight.

The N asdaq 100, which has been leading the way of late for stocks of late has continued to move towards the highs of the year and briefly crossed the 2400 level on Thursday but as with the S&P 500 it pulled back Friday and formed a northern doji. This is not in and of itself a reversal pattern but reflects some indecision and if we get a long red candle on Monday would complete an evening star pattern, which at resistance would be a bearish reversal. If however we see continued strength and a close above 2400 then we may well see a move towards the highs of the year at 2430 and a possible change of long term trend to up.

Commodities

Gold finally cleared the $1700 resistance level and continued onwards from there, only pausing slightly on Friday. If strength continues early next week then we may see a move higher towards $1800. Gold has remained the only metal in a long-term uptrend, and is there fore the strongest and the most likely to give a new buy signal.

Currencies

The dollar has continued south for a fourth straight week, with the dollar index falling through what was potentially good support around 7650. The trend remains up for now but that may change with continued weakness.

The major currencies have all fared well against the dollar of late but all still remain in a long term downtrend with the exception of the Japanese Yen, but maybe not for much longer. Several markets continue to press towards resistance levels and as with stocks, there are a few small real bodies/dojis showing on Friday including a couple of bear haramis, so there is some indecision at current levels or at least a pause. These markets could move in either direction at present so the week ahead should be interesting.

The Yen hit new record highs against the dollar, prompting speculation that the Bank of Japan will intervene once again to weaken the Yen. Possibly the only thing that is giving them pause is the fact that the Yen was softer against several other currencies. However, be on the long out for intervention and a decent sized move higher for the dollar, possibly towards the 7800 area.

Interest rate futures

Interest rate futures are beginning to head lower with the longer-term markets making new multi week lows. The long-term trend still remains up as for much of this past year this sector has been in a bull market but there are signs that these markets are beginning to potentially roll over. However, all of the markets remain above good support levels so until that changes the trends remain up.

Kind Regards

Robert Stewart