LS Trader Weekly Update – Monday 28th May 2012

The recent stock index decline took a pause this past week with gains being in all 4 of the major indexes. Commodities have continued their recent declines and the dollar has continued to advance. The long-term trends are still up for stocks and the dollar and down for commodities.

The markets continue to trend very well and in many cases better than they have for the past 2-3 years. This has led to gains for the LS Trader system in many markets and the system is now ahead 53.22%* YTD. If the current trending conditions remain in place we may be on target for another year of triple digit gains.

This Monday is Memorial Day in the U.S. so several markets will be closed.

Stocks

The S&P 500 pushed higher and may be headed for a test of 1340, which due to change of polarity may now act as resistance as it was previ ously a support level. The long-term trend remains up but the past few weeks have been weak and the 200-day moving average is still a potential downside target. The 200-day SMA currently sits around 1270. Before that though there is support at last week’s lows at 1287.

Similar moves were seen in the other indexes but there is little to do at present as the short term trend is not aligned with the long term trend so until that changes the best place to be in stock indexes is on the sidelines.

Commodities

Gold rolled into the August contract last week so the new lows for support are now at $1529.3. The long-term trend remains down and there should be resistance around $1600 with support in at the recent lows. A break of either level may lead to a decent move in the direction of the breakout.

Crude ended the week lower by 1.02% and did briefly dip below our $90 target before closing the week at $90.86. As we wrote last week, if $90 does fail to hold then a move to $85 may follow. The trend remains down.

There have been some other very profitable downtrends in commodities, namely Coffee, down 6.34% for the week and Cotton, down 5.6% for the week and Sugar, which was down 4.15% for the week. These are all markets that the majority of spread bettors don’t trade but they do provide excellent trading opportunities and often trend very well either from the long or short side. Orange juice is another less often traded commodity that is also in a steep and profitable downtrend, having declined 11.89% over the past 4 weeks. The LS Trader system has caught all of these moves. This shows the benefit of being diversified across different markets as well as the advantage of trading from the short side.

Currencies

The dollar index advanced to its highest level since 2010 having t aken out the highs of the year this past week, so the trend is very much up. Similarly, the Euro took out the support lows that we have bee writing about of late and has fallen to new 22 month lows. There is still room for further downside for the Euro.

The dollar also reached its highest level since February 2011 against the Swiss Franc as the uptrend continues to gain steam. The trend now favours the U.S. dollar against nearly all of the majors. If the dollar continues to advance then we will see further pressure on commodities and stocks.

Interest rate futures

Interest rate futures ended the week lower for the week but the long-term trend remains intact. As has been the case for much of the past few weeks there are signs that the uptrend may be coming to an end but so far each time new buying has come in to push the markets higher.

We wrote last week about the hanging man patte rns on the 10 year T note, stating that a lower close would be required to confirm that pattern and we did get that lower close. The market has so far not been able to close above the hanging man pattern so it is still intact so we may see a decline to support once again this week.

The 30 year Bond may decline to support around 14365 which had provided strong resistance previously and should now provide support. If support there is tested and gives way we may see some strong selling return to this market. The trend still remains up across the sector.

Good Trading

Phil Seaton

LS Trader Weekly Update – Monday 21st May 2012

Stocks have continued their recent decline and this week has seen some sharp moves lower. The long-term trend for stocks is still up but that may not continue for much longer if this weakness persists. Stock weakness has as ever been met with demand for the dollar, which continues to rise. Commodities overall have continued to suffer although there have been some exceptions, the trends are mostly down for commodities.

Stocks

Last week we wrote: “The S&P 500 broke out of the box range with a break of support at 1350. This pattern would point to a move lower towards 1290 but first key support at 1340 needs to be taken out.” 1340 support gave way on Monday and there was no looking back as the S&P fell to 1289.9 just as we said it might. Due to change of polarity, 1340 should now act as resistance and may help to pressure t he market lower should any rally attempts reach that high and fail. The trend still remains up for the S&P 500 in the long term but that may change. The 200-day moving average at 1265 remains a very viable downside target.

Of all the indexes that we trade at LS Trader, only the Nikkei is below the 200 day moving average. The Dax has tested it this week and has so far bounced off it, but it remains a target for both the Nasdaq 100 and the S&P 500. If all the indexes move below the 200 MA we may see considerably more selling.

One thing to note is that the VIX is on the rise having made an upside breakout this week and has reached its highest level this year. This is an indication the fear is returning to the stock markets and that people are paying larger premiums to protect their stock portfolios from downside risk. The 30 level has been quite an important level for the VIX over the past couple of years and that may be where we are heading next. If the V IX does reach 30, stocks will be lower.

Commodities

For the past few weeks we have been writing about our downside target of $1528.6 for June Gold. This level was reached this week and it has been met with buying. A fairly decent rally has followed from there but how much further the rally can continue for remains to be seen. The long-term trend is still down and the market continues to form lower highs and lower lows. Clearly last week’s lows are now key support as they match up with the late December lows and will be needed to be taken out for the downtrend to continue. If support here can be cleared the next downside target would be $1494.

Crude was sharply lower this past week, ending with a weekly decline of 4.86% and easily falling through our target of $93.50. The next target will be $90 and subsequently $85 if $90 fails to hold. The trend is down for Crude as it is also for Heati ng Oil. Only No leaded gas is still in a long-term uptrend but that may also change in the not too distant future.

Currencies

We wrote last week “the Euro had made a downside break from a descending triangle so we can take the height of that triangle and subtract from $1.30 to give a target of around $1.26, or more accurately $1.2640, which are the lows of the year.” The Euro fell to within 4 ticks of this target at 12644 and as expected support has so far come in. This led to the formation of a bullish engulfing pattern on Friday, confirming support from the prior lows back in January. However, the trend is still very much down and should the Euro rally from here it is likely to meet very stiff resistance at the prior support zone between $1.2975 and $1.3000.

The commodity based currencies continue to take a heavy hit and even the Canadian dollar, the strongest of the 3 commodity based currencies ended lower by 2.11% for the week. This brings a long-term change of trend to up for USD/CAD into range. This past week saw the Aussie dollar give a confirmed change of trend to down and the 9600 level will be the next downside target.

Interest rate futures

The trend for interest rate futures continues to be up but there are signs once again that the markets may be reluctant to push much higher from here. The 5-year T-note formed a dark cloud cover and was subsequently followed by a couple of doji, so indecision is certainly present at current levels. A close below the prior resistance levels, which should now be providing support due to change of polarity, would be short-term bearish and may lead to a correction. The 10-year T-note is holding up better than the 5-year, and the 30-year T-bond also had a strong week but both have a hanging man pattern formation on Friday’s daily chart . This is potentially a short-term bearish reversal, which would be confirmed by a close below the low of the hanging man patterns.

Good Trading

Phil Seaton

LS Trader Weekly Update – Monday 14th May 2012

Stocks have continued the seasonal May weakness and only the Dax has managed a small gain from the stock indexes that we trade at LS Trader this past week. All the indexes are now some way below their 50-day moving averages but the long-term trend is still up.

The dollar continued recent strength and advanced across the board taking out some key levels in the process. The dollar index now looks poised for a breakout higher and this may lead to continued weakness for commodities and further pressure stocks. The long-term trends are now mainly down for the commodities markets with only few exceptions but still remain up for stocks.

Stocks

The S&P 500 broke out of the box range with a break of support at 1350. This pattern would point to a move lower towards 1290 but first key support at 1340 needs to be taken out. 1340 is significant as it was a prior resistance level from the highs of 2011, formed almost a year ago. This resistance level is clearly visible on the weekly chart, and due to change of polarity, prior resistance becomes support. It is interesting to note that this level was respected this week with the low of the week being at 1339.5 before closing higher at 1350. For now though the long-term trend is still up.

The Dax has been the most bullish index of the week, being the only index to manage a gain. Following a sharply lower open on Monday, strong buying ensued during the day, forming a meeting lines pattern. The Dax was able to hold support from the lows of the week and end ahead by 0.30%. This suggests good support at last week’s lows around 6370. As with the S&P 500, the Dax has a change of polarity from last year’s highs at 6471, so the attempt to move below that level was rejected.

The Nasdaq 100 did move below 2625 but held up just above the 2575 lev el that we wrote about last week. The trend remains up.

The German Dax did push above 6800 on an intra day basis but was unable to close above that level and subsequently moved lower once again and now looks to be headed for a test of the lows of the current trading around 6500. Just below this is a further support level created by the change of polarity from the October highs, so a key support zone is in play for the week ahead. For now the trend is still up but the market’s reaction at this support zone will provide a clue as to near term direction.

Commodities

Last week we wrote on Gold “A test of the April lows at $1613 looks likely and if that support level fails then a move to the year’s lows at $1528.6 would become the target.” Gold sailed through $1613 support and ended the week down by 3.72% for the week before closing out at $1584. The year’s lows as $1528.6 may now be the next destination is there is not much in the way of support between here and the current price.

Crude did test and move below the 200-day moving average and also got a bounce higher before moving lower once again. This bounce was not all that surprising considering the extent of the decline in such a short period but the trend is now down and if last week’s lows can be taken out the next target will be circa $93.50.

Overall commodities are heading lower at present.

Currencies

We wrote last week that a few key support and resistance areas would likely be tested in the week ahead and that is what happened. As we have been writing of late, no support level was more important than the $1.30 level on the Euro and that gave way. That also meant that the Euro had made a downside break from a descending triangle so we can take the height of that triangle and subtract from $1.30 to give a targ et of around $1.26, or more accurately $1.2640, which are the lows of the year.

The dollar was higher across the board and this has led to the dollar index moving right to the top of the recent range with a breakout likely in the week ahead. Such a move would likely lead to continuing gains for the dollar against the major currencies and would put stocks and commodities under further pressure.

The commodity based currencies continue to be hit as a move back towards the risk-off trade has been evident, hence the move out of the riskier currencies and into the U.S dollar.

Interest rate futures

Interest rate futures were higher for the week with the exception of the 3-month Eurodollar. The 5 & 10 year T notes both reached record highs and the laggard of the longer-term markets, the 30-year T Bond also pressed higher. There are signs however of waning momentum and higher prices ar e being rejected intra-day as seen by the long upper shadows. The trend remains up but the upside may be limited, especially for the 30 year Bond.

Good Trading

Phil Seaton

LS Trader Weekly Update – Monday 7th May 2012

The month of May has got off to a weak start for stock indexes, which have all sold-off this week, having failed to make new highs for the year. This has taken all of the indexes that we trade at LS Trader back below their 50-day moving averages.

The dollar reversed the prior week’s moves and ended the week higher against all of the majors with the exception of the Yen. This has led to weakness for most commodities. The long-term trends are still up for stocks, mixed for the dollar and mostly down for commodities.

Stocks

The S&P 500 topped out for the week on Tuesday and spent the rest of the week in decline. It remains to be seen as to whether we have already seen the highs for the year for the stock indexes. The answer to question may be clearer once we see the market’s reaction to a test of what should be quite go od support around 1350. If 1350 support fails and we get a confirmed break out of the current box range, then we can take the height of the range and subtract it from the low of the range to give a target of around 1290. For now the trend is still up.

We wrote last week about the relationship between Apple and the Nasdaq 100, and this week saw Apple make a large decline falling some 6.26% for the week and now looks to be heading for a test of support around $555, a break of which may open the way to further declines. Such a move would have a bearish impact on the Nasdaq 100, which has closed right on support at 2625 on the June contract. If 2625 gives way, the next support is at 2575. For now the trend is still up.

The German Dax did push above 6800 on an intra day basis but was unable to close above that level and subsequently moved lower once again and now looks to be headed for a test of the lows of the current trading around 6500. Just below this is a furth er support level created by the change of polarity from the October highs, so a key support zone is in play for the week ahead. For now the trend is still up but the market’s reaction at this support zone will provide a clue as to near term direction.

Commodities

Gold edged lower by 1.18% and continues the longer-term downtrend. The market almost reached as highs as short-term resistance at $1680 but failed to reach that far and moved back towards the lows of the range. A test of the April lows at $1613 looks likely and if that support level fails then a move to the year’s lows at $1528.6 would become the target.

Crude may a precipitous decline in the last 2 trading days of the week, taking out the support level around $101 that we wrote about a few weeks ago. The trend still remains up and a test of the 200 day moving average looks highly likely this week, with a bounce from there a pos sibility due to the extent of the 2 day move. A change of long-term trend to down is now within range.

Currencies

The dollar advanced against most of the majors and a few key support and resistance levels may be tested this week, none more important than the $1.30 level that we have been writing about for the past few weeks. Many traders will be focused on this level and a break below it, especially on a closing basis could spark a dollar rally and a breakout higher for the dollar index.

The commodity based currencies have been heavily hit this past week as a move back towards the risk-off trade has been evident, hence the move out of the riskier currencies and into the U.S dollar.

Interest rate futures

Many so called experts have been warning against interest rate futures for quite some time and have been giving sell recommendations for ages. The fact remains though that these markets are still very much in a bull market and the trend is firmly up. This was confirmed by the sharp rejection of the lows back in March and the subsequent strong rally seen since which has taken the 10 year T note back to new highs. Trying to pick tops and going against such a strong trend is a dangerous move. Trading with the trend is a far safer option even though prices are at record highs and yields at record lows. One potential fly in the ointment to higher prices is the fact that the 5 year T note is now right at resistance formed by its all time highs, and the weakest of the sector, the 30 year bonds are also approaching a test of all time highs.

Good Trading

Phil Seaton
www.LSTrader.co.uk