LS Trader Weekly Update 30th September 2012

Stocks ended the month on a weak note but did manage to advance overall for the seasonally weak month of September. The dollar advanced almost across the board and commodities were mixed.

The long-term trends are still up for stocks, down for the dollar and mixed for commodities.

Stocks

Having survived what is seasonally the worst month of the year on an historical basis, stocks now enter the jinx month of October, so known because of the crashes in 1929,1987, 1997 and the meltdown in 2008 amongst others. Although stocks have managed to advance for the month, the gains came in the first half of the month and the latter half has seen weakness. However, with the exception of the Nikkei, the long-term trends are still up.

The S&P 500 December contract formed a rounded top and ended the week lower by 1.22% but is still just about holding above support and the trend is still up. If support gives way then a drop to 1400 can be expected, and possibly a move to 1390, where good support should be found. The Nasdaq 100 sold off a bit more aggressively, bringing the uptrend to an end for now.

Commodities

Gold closed the week slightly higher and just above the long-term sloping trendline that we wrote about last week that had held since November 11. Gold did initially fall through the trendline so it is now broken and did not provide support, although the market has since moved back above the line. Sloping trendlines are often unreliable, and are much less reliable than horizontal support and resistance lines, primarily because they are not as obvious to most people and the inconsistency with drawing them. As is the case with several commodities markets, there are long lower shadows on the weekly charts that indicate the lows being rejected. The trend remains up for the yellow metal.

Silver has, as usual, had similar price action to gold, where the lows of the week were rejected. The trend is still up and the target remains at 3800.

Crude oil formed a classic hammer pattern on the weekly charts, where having been sharply lower earlier in the week, which included a move below the $90 level for the first time in 8 weeks, saw strong buying and the lows being rejected. However, the long-term trend is still down for Crude and we may yet see a move down towards $88

Currencies

We wrote last week that the dollar index was back to a level that was previously major long-term support. For the downtrend to be good generally that prior support level would have acted as support but the index pushed back above that level and closed above it. This suggests further dollar strength in the near term, even though the long-term trend is still down.

The Pound continued to find resistance at $1.63 and has since headed lower with the uptrend looking like it’s coming to an end, at least for the immediate future. Several other currencies have moved back to the middle of their current trading ranges as the dollar gains some strength in the near term.

Interest rate futures

The long-term trend remains up for the interest rate futures sector and this past week has seen these markets move higher once again, and in the case of the 5-year T notes, test all time highs. The highs of the week, which came on Friday were forcibly rejected with long upper shadows showing on the daily charts, culminating in what’s known as a shooting star pattern, which is a bearish reversal pattern. So, although the trend is still up, there is undoubtedly resistance at the highs and limited upside potential.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update 24th September 2012

Stocks and the dollar ended the week fairly flat as both for the most part remained in relatively tight ranges. Commodities were much more volatile with large moves being seen in several markets, especially the energy sector.

The long-term trends are still up for stocks and mixed for the dollar and commodities.

Stocks

Stocks ended the week marginally lower at the end of expiration week as September futures rolled in to December. The S&P 500 December contract ended lower by 0.49% for the week but is still clearly in an uptrend. The upside target remains in place at 1500, which would represent new multi-year highs.

The December Nasdaq 100 was slightly more bullish, advancing 0.08% for the week and making new 11 year highs once again. The trend is clearly still bullish. The Dax also advanced to new highs for the year, but the Nikkei, the only index still in a long-term downtrend ended lower. However, the trend for the Nikkei could change to up should new highs for the year be reached.

Commodities

Gold closed the week higher by 0.3% and continues to edge towards our target at $1800. Friday’s close was marginally above a long-term sloping trendline that has held since November 11. That trendline may now provide support and a test of resistance around $1800 now looks likely.

Silver ended the week flat and is consolidating at present. The trend is up and the target remains at 3800.

The grains bull market appears to have come to an end at least for the immediate future. Soybeans ended the week lower by some 6.74%, bringing the current trend to an abrupt end. Soybean meal ended lower by 7.5% for the week as the two best performing markets, both of which have been highly profitable to trade, declined along with other grains markets.

Big moves also were seen in the energy sector as Crude oil ended the week lower by 6.48%. U.S. Crude, the weakest of the energy markets fell through support and now resumes the downtrend. No leaded gas and heating oil were also sharply lower but did recover some of the declines by the end of the week.

Currencies

The dollar index ended a run of 4 losing weeks with a weekly gain of 0.52%. What is important now is that the market has risen back to a level that was previously major long-term support. Often in these circumstances prior support changes polarity to become resistance so it will be interesting to see how the index fares at this level in the week ahead.

The Pound reached our target of $1.63 but has since pulled back slightly, showing that $1.63 is still providing resistance. If that resistance can be cleared, especially on a closing basis then $1.67 will be the next target. The Euro was lower for the week and still remains in a long-term downtrend.

Interest rate futures

The long-term trend remains up for the interest rate futures sector and this past week has seen these markets move higher having sold off quite heavily in recent weeks. The lows from this past week and the prior week now look to be a good support level on the 30 year T-bond so we may see a continuation higher as long as that support area holds. However, if it gives way a change of long-term trend to down is likely.

The shorter term 5 & 10-year T notes are both stronger, with the 5-year notes not far from all time highs and still clearly in an uptrend. However, as we have written many times of late, the risk/reward here is not favourable for long-trades at present.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update 17th September 2012

It’s been another bullish week for stocks following the announcement of QE3 from the Fed. This has been bullish for stocks and commodities but bearish for bonds and the dollar. The long-term trends are now mostly up for stocks and commodities and turning bearish for the dollar.

Stocks

So far September has been another example of how unreliable seasonal tendencies are and why basing trading decisions purely on seasonality is folly. The long-term trends have been up for U.S. stocks for quite some time and have continued to be so over the past 2 weeks which our supposedly bearish.

The S&P 500 continues to look as though it may head higher towards 1500 although there was a shooting star pattern formed on Friday’s daily chart, which is a bearish reversal pattern but that’s not really too unsurprising considering the extent of the recent rally in such a short space of time. It would be a brave and foolish man to try and short this market at present and those that try to pick tops and bottoms usually end up getting hurt in a big way. As ever, the correct approach is to follow the money and simply trade with the trend, the path of least resistance.

The Nasdaq 100 was also in bullish mood once again and reached new highs since 2001. The Dax followed suit and even the Nikkei 225, the only index still in a long-term downtrend of the 4 made a nice advance. The trend is still down for the Nikkei but that may change over the coming weeks if the present bullishness continues.

This Friday is triple witching, so we can expect an increase in volatility as the stock indexes roll out of the September contracts into the December contracts.

Commodities

It’s been another good week for Gold and as we wrote last week, the yellow metal looks set for a test of $1800. If $1800 can be cleared there is little in the way chart wise to prevent a rise back towards all time highs. Silver was also bullish and we remain on track for a test of our longer-term target around 3800.

Brent Crude continued to advance and confirmed a trend change to up. It has however so far been unable to build on that and actually came off the highs of the week into Friday’s close. Heating oil also changed trend to up and now only U.S. crude is in a long-term downtrend in this sector.

Currencies

The dollar index fell 1.74% for the week and fell through the next major support level as the long-term downtrend gets back on track.

The Pound continues with its recent good run and remains on target for a test of $1.63 and further out possibly $1.67. The pound also continued higher against the Yen and may be targeting the 130 level next.

On balance the trend is shifting against the dollar versus most of the majors. The trend is still up for the dollar against the Swiss Franc and Euro but that may change if dollar weakness continues over the next couple of weeks.

Interest rate futures

As we have been writing of late, in spite of the interest rate futures sector still being in a bull market and relatively near all time highs, there was limited upside and the risk/reward for longs has not been favourable. The long-term trend is still up but this week saw some substantial moves lower, especially in the longer-term 30-year T bonds. The extended QE announced this past week by the Fed is being perceived as inflationary and is pressuring bonds. However, as before further weakness and a confirmed change of trend to down is required before attempting any short entries, but if the current short-term weakness continues that may not be far off.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update 10th September 2012

It’s been a bullish week for stocks as the U.S. indices continue to lead the way. The Dax has also had a change on long-term trend to up and only the Nikkei remains in a downtrend. The dollar has also declined and this has led to advances for commodities, especially the metals, most of which are now at multi-month highs.

This week sees the 2 day FOMC meeting on the 12th and 13th which always has the potential to move the markets, especially if something unexpected is announced. The majority of economists expect some form of QE3 to be announced, which will likely be bullish for stocks and commodities and bearish for the dollar. However, if no such move is announced we may see the opposite reaction as some form of QE3 is likely priced in to the markets already.

In addition there are a few potential market-moving events in Europe, the main focus of which will be on Wednesday.

This Friday is also quarterly forex expiration, so we will roll out of September and into December on our currency forwards.

Stocks

The seasonal September weakness is nowhere to be seen so far as the S&P 500 continued to hold on to the support level that we wrote about last week and then shot higher on Thursday and Friday. Whether the S&P 500 can continue the current upside momentum and head towards the 1500 level and potentially the 2007 highs remains to be seen. The Nasdaq 100 was also in bullish mood, once again hitting new highs since 2001.

The Dax finally confirmed a long-term trend change to up having threatened to do so for the past few weeks. This week saw the September contract hit a new high for the year having cleared April’s highs.

The Nikkei 225 is still the weakest of the indices that we trade at LS Trader and even with a decent move higher on Thursday and Friday still ended the week lower by 0.22%. The trend remains down for the Nikkei but is now up for all the other stock indices.

Commodities

Last week we wrote that Gold was likely to test the $1700 level and that September was a very strong month for the yellow metal. This week we saw a successful test of $1700 and then a strong move higher. The yellow metal now looks set for a test of $1800.

We also wrote that silver was looking set for a change of long-term trend to up and we also saw that this week. As with gold, silver is currently extremely bullish and may continue higher towards our longer term target around 3800.

According to the CFTC (Commodities Futures Trading Commission) money managers increased their net long bets on energy prices rising this week and took this figure to 4-month highs. Although we have seen strength in this sector of late the long-term trend for U.S. Crude and Brent Crude is still down but both are nearing changes of long-term trend. At present, only No leaded gasoline is in a long-term uptrend, with heating oil also gaining strength.

Currencies

The dollar index fell back through the support levels that we have been writing about recently and also dropped back below the 200 day moving average. These events led to a swift move lower and a resumption of the longer-term downtrend for the index.

The Pound continues with its recent good run, clearing the $1.59 resistance and just pushing above $1.60. Our next target is around $1.63. The pound also advanced against the Yen.

The USD/CAD finally hit and then exceeded our longer-term target at 9835 and may now continue to decline towards last summer’s lows.

Overall the dollar is currently shifting back towards long-term weakness.

Interest rate futures

Interest rate futures ended the week mostly lower but most of the sector remains near all time highs and the long-term trends are still very much up.

We still see limited upside for the sector from here and the risk/reward for longs is still not attractive, but as before further weakness and a confirmed change of trend to down is required before attempting any short entries.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update 3rd September 2012

The week ahead will be a shortened trading week as Monday is Labor Day in the U.S. so U.S. markets will be officially closed. Markets elsewhere will still be trading but it is generally a light volume day.

The long-term trends are up for U.S. stocks, down for European and Asian indexes but still mixed for the dollar and commodities.

Stocks

The S&P 500 ended the week lower by 0.33% but had been lower than that until a decent recovery on Friday. The candle pattern was a piercing line, which bounced up nicely off short-term support and kept the trend running. However, we are now in to September, which is the weakest month of the year on an historical seasonal basis. The Nasdaq 100 ended marginally lower for the week but is still the strongest of the U.S. indexes.

The Dax has still been unable to confirm a change of trend and is coming close to resuming the downtrend. As with the S&P 500, Friday saw some decent buying from support, so the market is currently within a tight trading range between just below 6900 and 7100. The long-term trend is still down for now.

The Nikkei 225 was the weakest of the indexes we trade at LS Trader and we may now see a continuation of longer-term weakness.

Commodities

Gold did manage to clear the highs of the prior week and has given a change of trend back to up with a test of $1700 likely very soon. Gold often does well this time of year and September begins a strong period for the yellow metal. Silver is also moving higher and as with gold, now looks set for a change of long-term trend to up.

Energy markets were also higher for the week and the long-term trends in this sector are now mixed. The strongest market in the sector continues to be no leaded gas.

Soybeans and Soybean Meal remain the strongest markets of all, both very much in bull markets. Both markets posted new all time highs again this past week and may yet continue higher. Oats also rose it its highest level in over a year and continues to trend higher. The weakest market of the sector is rough rice, which this week declined by 2.58%.

Currencies

The dollar index support levels that we mentioned last week did fail to hold and the market went below support and the 200-day moving average. We saw a small bounce towards the end of the week but the market closed just under the prior support level. Whether this now acts as resistance remains to be seen.

The dollar is therefore very mixed at the moment with the dollar still in a long-term uptrend against some of the majors but in a downtrend against some others.

Interest rate futures

Last week we wrote: “Those that thought that a top was in and went short will have been caught once again by going against a very strong uptrend.” This is another example of why trading against the long-term trend is dangerous and is something we never do. There is a general principle in trading that the markets will move in the direction that causes the maximum amount of pain for the most amount of people. There have been lots of people trying to pick the top and shorting these markets, so far very unsuccessfully. That said, there seems limited upside for the sector from here and the risk/reward for going long is not attractive, but confirmation of a change of trend to down is required before attempting any short entries.

Good trading

Phil Seaton

www.LSTrader.co.uk