LS Trader Weekly Update – Monday 23rd January 2012

We have been writing of late about the inverse correlation between stocks and the dollar and this past week has seen more in the way of risk-on, which has favoured stocks and led to dollar weakness. This move has started to shift the long-term trend to up for stocks, but it also still remains up for the dollar. It is unlikely that both of the long term trends will continue for long in the same direction so something is going to shift before long.

Stocks

We have been writing of late about various seasonal indicators and tendencies for the stock markets in the year ahead based on what happens to stocks at different times in January and over the month as a whole. So far, January has been highly bullish so if things continue this way until the end of the month and hold true to form, stocks could be on for an up year.

Last we ek we wrote “Short-term direction is still unclear but a break above 1300 would open the way for a rise to the 2011 highs at 1355.” We did get the breakout above 1300 and not only tht but the market went on to close above that level, which included a weekly close also for further bullish confirmation and there is little in the way chart wise to suggest that the market falls short of a test of the 2011 highs around 1355.

Strength in stocks also led to a breakout for the Nasdaq 100, which this past week hit a new 10 year high having reached its highest level since 2001. Whether we get further strength this week remains to be seen and we may also see the Dax make an upside breakout.

Commodities

Crude ended lower for the second straight week but the trend is still up. Crude has closed once again below the $100 level but the trend is still up. As before we may see a continuation lower towards the 200 day moving average, which may act as support.

Gold managed to clear resistance at $1650 but has not really moved ahead in a convincing manner. The trend remains down but the market has moved back above the 200 day moving average so further strength may be seen and may get to around $1680 where there is further resistance. Silver had a larger move to the upside than gold, but the trend also remains down for silver.

Once again the big moves of the week came in the Orange Juice market, which ended the week ahead by 14.11%. The long term trend is clearly up and the market bullish, as strength this week erased losses seen at the end of the prior week and took Orange juice back to 34 year highs.

Currencies

The risk-on move being seen so far at the start of this year is having a negative short-term impact on the dollar. Although the long-term trend remains unaffected short term the dollar is weak and may be heading for a test of various support/resistance levels in the week ahead. The most important of these will be on the dollar index, which is still holding above support at 8000. There is also further support around 7950 and the dollar will remain in an uptrend short term as long as those levels hold.

Both the Euro and the Pound had bullish weeks, particularly the Euro, which broke out of a medium term bear channel, which has been in place since October. When this happens we often see a move back to test the top of the channel, which is currently just below the $1.28 level. The trend for now is still down.

Interest rate futures

The trend continues to be up for the interest rate futures sector but the risk-on strategy seen in other markets has resulted in lower interest rate futures this week. Longer term markets are heading for short term support but consider able further weakness will be required for a long term trend change to down. The 5 year notes still remain relatively close to all time highs.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 16th January 2012

We wrote last week that the way the year has started with both stocks and the dollar rising is unusual and this has continued this week. The dollar index has risen to its highest level in a year and the S&P 500 has also reached a multi-month high. Stocks and the dollar are historically inversely correlated so how much longer both markets continue to rise together for remains to be seen. Probably not very long will be the answer.

Stocks

Over the past couple of weeks we have been writing about the so called January Early Warning system which states that if the first 5 trading days of the year end up, so does the rest of the year with good accuracy. The last 38 up first five days where followed by up years in 33 of those years for an 86.6% accuracy ratio. This year the first 5 days were up, so if you put any stock in this indi cator, then the year should end up. I personally have little faith in such an indicator and believe stocks will end the year lower but we shall see.

On a more important note than seasonal indicators, the S&P 500 finally took out the 1280 resistance level but has not as yet pushed on in a convincing manner. 1300 was tested on Thursday with an intra-day high of 1297.5 but resistance held and the market pushed lower. Short-term direction is still unclear but a break above 1300 would open the way for a rise to the 2011 highs at 1355.

Commodities

Crude continued its decline and moved back below the $100 level. We may now see a continuation lower towards the 200 day moving average, which may act as support. For now the trend remains up.

Gold reached a 4-week high on Thursday but was rejected above the $1650 level and a shooting star pattern formed, followed by a bearish engulfing pa ttern on Friday so there is clearly resistance at $1650. The long-term trend remains down and there is not much in the way of support between current prices and the recent lows.

Orange Juice was a hugely active market, which saw a limit up move on Tuesday take futures to a 34-year high but this move was reversed the next day. By the end of the week juice ended ahead by 3.85% in what was an extremely active and volatile week.

Biggest moving sector of the week was grains, which reversed much of their recent gains and markets often do when moves are made counter to the long-term trend. The long-term trend remains very much down across the sector and new lows may not be too far away.

Currencies

The dollar index continues to find support around the 8000 level which continues to hold well. Friday saw a decline towards 8000 but buyers came in well above support and took the index up to a new 12-month high. The trend remains up for the dollar index as it does for the dollar on the whole.

The Euro continues to drift lower, falling to new 15-month lows against both the Pound and the dollar. The trend is still therefore very much down. Against the dollar the euro remains in a bear channel that is quite well defined and has remained in place since the end of October. The top of this channel is currently around the $1.29 level so that should provide some resistance. If last week’s lows can be taken out then the next target will be $1.25 and below that we will be looking at $1.20.

Interest rate futures

We wrote last week that we may yet see new low yields in the interest rate futures sector and that has been seen this week. The uptrend has been stubborn to say the least in spite of most commentators expecting prices to decline and we have once again seen new high prices. Those who continue to fight the trend and try to call a top continue to do so at their own peril. With the likelihood of further easing from some of the central banks (something must surely be in the pipeline in the Euro zone and in the U.S.), I would not bet against even lower yields and yet higher prices. The trend is up.

Kind Regards

Robert Stewart

LS Trader Weekly Update – Monday 9th January 2012

As we kicked off the new trading year we saw a bullish week for the dollar with moves very much in the direction of the long-term trend and also a continuation of short-term strength in stocks. This is an unusual move as stocks and the dollar are historically inversely correlated. The long-term trend for stocks remain down but if short-term strength continues that may change soon. The trend for commodities is also down but commodities during the first week of the year have been mixed.

Stocks

We wrote last week about the focus for stocks being on what is known as the January Barometer and initially on will be on the first 5 trading days, which act as quite an accurate early warning system for what is likely to happen for stocks in the year ahead. The last 38 up first five days where followed by up years in 33 of those years for an 86.6% accuracy ratio.

The January Barometer is based on the full performance for January, which shows an 88.5% accuracy rating and has only been significantly wrong 7 times in the past 61 years. This barometer basically reads that as goes January, so goes the rest of the year, so if January ends ahead it is likely that stocks will end the year ahead according to this indicator. My view remains that stocks will end the year lower but time will tell.

We also wrote last week that what was more important were the resistance levels that the S&P 500 was testing and the market’s reaction at those levels would be key for the short term. We noted that there was an evening start pattern formed on the S&P 500 daily charts (a bearish reversal pattern) at the 1280 resistance level and both of these would need to be cleared for a move higher to occur. So fat, although the S&P 500 was higher it has been unable to break that resistance and the trend therefore re mains down. Of interest is the small-bodied candles and dojis once again at resistance which represent indecision at these levels. Although small bodied candles and dojis are not reversal patterns in and of themselves they normally indicate that the short-term trend has switched from up to neutral and often proceed a reversal. Therefore the week ahead may be critical. It will also give us the data for the first five trading days early warning system following Monday’s close.

Commodities

Commodities have been mixed for the past week and gains have been seen in metals and energies, whilst recent strength in grains has stalled and reversed somewhat. The long-term trends for commodities, which are mostly down but with a few exceptions, namely the energy sector on the whole, remains down.

Currencies

The dollar index on ce again held on to the 8000 level and that formed a platform for another advance and was sufficient to take out the recent highs. The 8000 level should continue to act as support and as long as it holds the short term trend will remain up. Last week’s high represents the highest level seen for the dollar index in almost a year.

We also wrote last week about the Euro and the fact that the Euro remains in a bear market set up as it continues to form lower highs and lower lows, and that continued this week with new lows seen once again. Last week’s low for the Euro was the lowest since September 2010 and the trend remains very much down.

Interest rate futures

The trend remains up for Interest rate futures as indeed it has for much of the past year and we may yet see yields fall to new record lows and new highs for prices in the not too distant future. Much will depend on how stocks react i f and when they test key resistance levels. A breakout for stocks to the upside will likely see a move lower for interest rate futures but if stocks move lower then new highs for interest rate futures remain on the cards.

Kind Regards

Robert Stewart