LS Trader Weekly Update – 28th October 2012

The double top on the S&P 500 has continued to exert a downward force on the S&P 500 and the potential double top on the Euro that we have written about previously may be confirmed this week as a test of the key support and intervening low between the two highs looks likely this. The outcome of that may have an impact on where the markets move for the next few weeks at least.

Additionally, the U.S. Presidential election is just over a week away and speculation mounts over who the victor will be and what the impact will be on the markets. My view is as ever the same, forget guessing and predictions and let the market tell you where the markets want to go simply by following the trends. Currently these trends are up for stocks, and mixed for the dollar and commodities.

Stocks

We have written over the past couple of weeks that the double top on the S&P 500 may take the market down to 1380 if support at 1420 was taken out. Support was taken out and the market continued lower before finding new support at 1394. This suggests that there still may be further downside ahead but for now the trend remains up.

The Nasdaq 100 continues to lead the decline and moved below the 200 day moving average as we suggested may happen last week. Friday did see a bit of a recovery and the long-term trend remains up. The shorter-term trend is down.

The Dax fell through support at 7200 early in the week but was able to regain that level on Friday as the index bounced off a long-term upward sloping trendline that has held since late June. The trend is still up for the Dax and it continues to hold up much better than its overseas counterparts. A close below 7200 will likely lead to a test of last week’s lows and a probable drop towards 6900, the next support area.

Commodities

Gold continued its recent decline and fell to $1700 before a minor recovery. This decline took the market to its lowest level in 7 weeks and below the 50 day MA. The 200-day MA looks like the likely next downside target around $1670 but for now the long-term trend is up.

Last week we wrote: “Crude remains range-bound between $94 and $88, with the long-term trend still being down. Since the trend is down, a test of $88 looks more likely, with considerable downside room should support there fail.” As expected $88 was tested and taken out and a move to $85 followed, where support has so far been found. If last week’s lows can be taken out, a move towards $80 looks on the cards.

Currencies

The currency markets have been mixed once again with the dollar advancing against some majors and declining against the others. Overall though the dollar advanced, reflected by a weekly gain of 0.59% for the dollar index, which was heavily influenced by weakness in the Euro. This advance took the index back above 80 to 6 week highs. The trend however is still down.

As covered previously, probably the most important of the forex markets at present is the Euro. A range is still in place between approximately $1.32 and $1.28 and a breakout through either level may lead to a decent move. A break through support, which at this point looks more likely, would confirm a double top and give new downside targets of $1.25 on the December contract.

Interest rate futures

Last week we wrote about the 30-year T-bond and the 3-day morning doji star pattern that had formed, suggesting that the lows of that week may provide support and some bullish momentum. On a closing basis the lows did hold and the bonds pushed higher for the week. Interestingly this week a hammer has formed on the weekly charts so there is definitely good support around 146 in this market, meaning that the uptrend is still in progress.

A change of trend to down is still in range for some markets in the sector but further weakness will be required before the trend changes to down.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update – 21st October 2012

We began last week’s update by talking about the double top that had formed on the S&P 500 and questioning whether that would end up being the high of the year. The market then began the week in bullish mood but that evaporated on Thursday and Friday, as did the week’s gains up to that point. The long-term trends remain up for stock indexes with the exception of the Nikkei, but all indices are looking under pressure in the short-term.

What is of further interest is that a potential double top could be forming in the Euro. It seems therefore that, due to the high correlation seen recently between the Euro and the S&P 500 that we may be on for some decent moves in stocks and currencies, depending on whether these patterns complete or not. For now the trend is still down for the dollar and remains mixed for commodities.

Stocks

As we discussed last week on the S&P 500’s double top, using standard pattern measurements, would project to a decline to around 1380 on the December contract. If the prior week’s lows at just under 1420 can be taken out, that will be a very realistic target.

The Nasdaq 100 remains weaker still and declined by 1.7% for the week, with a test of the 200-day moving average looking likely this week. The 200-day MA currently sits at 2634.

The Dax continues to hold up much better than its overseas counterparts, and even managed to advance for the week. Support around 7200 appears to be the key for this market. If 7200 does fail, a drop to 6900 may follow swiftly. Similarly, new highs for the year are also in range but advances for the Dax may be kept in check by weakness elsewhere.

Commodities

As expected, the uptrend for Gold did come to an end as resistance at $1800 proved to be too much for the yellow metal. The long-term trend however is still very much up.

Natural gas made another new 12 month high, albeit only by a small margin, as it continues to be the leader of the energy sector. No leaded gas and heating oil were both unable to push on, having recently both made new highs for the current move.

Crude remains range-bound between $94 and $88, with the long-term trend still being down. Since the trend is down, a test of $88 looks more likely, with considerable downside room should support there fail.

Currencies

The currency markets have seen a little more activity during the past week even though the dollar index ended the week lower by just 0.07%.

Probably the most relevant of currency markets at present is the Euro, which may be forming a double top as we mentioned above. For now a range is in place between approximately $1.32 and $1.28 and a breakout through either level may lead to a decent move, especially if the break is to the downside, where the potential is there for a drop to around $1.25 on the December contract.

As we wrote last week, the trend remains down for the dollar against virtually all of the majors but how long that continues to be the case for remains to be seen, especially if we have seen a top in stocks.

Interest rate futures

The trend across the interest rate futures sector is still very much up but upside potential still looks limited. This is an idea that seems to be present in this sector as all of the markets ended the week lower in spite of a bullish day on Friday. In the case of the 30 year T-bond, this bullish day on Friday completed a 3-day morning doji star, which is a short-term bullish reversal pattern. Whether the lows seen last week in this sector continue to provide support remains to be seen.

A change of trend to down is in range for some markets in the sector, due to a large extent to the duration of the consolidation seen over the past few months, where even though the markets have tested the highs, they have for the most part moved sideways. The shorter-term trend is beginning to look weak.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update 14th October 2012

October may yet prove to be the undoing of stocks as a double top has formed on the S&P 500, which has led to short term support being broken, culminating in a weekly loss for the index of 2.34%. Whether this ends up being the top for the year remains to be seen but we may see further downside this month. As we have written previously, October has had a tendency to be a jinx month for October with multiple crashes being seen over the past 80 or so years.

Elsewhere has seen minimal activity in the currency markets, which for the most part are consolidating at present. Commodities remain mixed but the trends are still mostly up for stocks and down for the dollar.

Stocks

As mentioned above, the S&P 500 has confirmed a double top pattern by a breach of the intervening low between the two recent highs. Taking standard pattern measurements, this would project to a decline to around 1380 on the December contract, just below the next level of support, so that appears to be a realistic target for the next few weeks.

The Nasdaq 100 was weaker still, declining by 3.36% for the week and also taking out support. Having taken out the 50 day moving average, we may now see a continuation lower towards the 200 day MA.

The Dax continues to find support in the region of the 7200 area, which appears to be the key for this market. If 7200 does fail, a drop to 6900 may follow swiftly.

The VIX remains near its lowest level since 2007, indicating that complacency is still running high in the markets. Going on the basis that the crowd is usually wrong and that the VIX is a contra indicator, we may see a rise in the VIX and a decline in stocks in the not too distant future. Last week’s decline for stocks has so far had little impact on the VIX.

Commodities

December Gold looks as though the $1800 level resistance has proven too much, at least for the near term and short-term support looks likely to be broken in the near term, suggesting an end to the uptrend for now. The long-term trend however is still very much up.

Crude had a strong move this past week, most of which came on Tuesday. The trend is still down. The trend for the other market in the sector is up, with Natural gas having reached a new 12 months high. Is this the start of a new bull market move for Natural gas? No leaded gas and heating oil both made new highs for the current move.

Currencies

The dollar index advanced by 0.39% for the week but it has been an uneventful week for the currency markets, most of which are in sideways consolidations. The trend remains down for the dollar against virtually all of the majors but how long that continues to be the case for remains to be seen, especially if we have seen a top in stocks.

Interest rate futures

The 5 year T-notes continued to pull back from the recent highs but the trend is still up. Faring better in the short term are the 10 year T-notes and the 30 year T-bond. The trend across the sector is still very much up, even though a change of trend to down is in range for some of the sector, due to a large extent to the duration of the consolidation seen over the past few months, where even though the markets have tested the highs, they have for the most part moved sideways. Upside potential continues to be limited for the shorter term markets, but the longer term markets may yet have room to move.

Good trading

Phil Seaton

www.LSTrader.co.uk

LS Trader Weekly Update 7th October 2012

The month of October is underway and so far it has seen stocks rise and the dollar fall. Commodities have been mixed once more. The long-term trends are still up for stocks, down for the dollar and mixed for commodities.

Stocks

The S&P 500 December contract advanced 1.49% for the week, erasing most of the two previous weeks’ losses and coming within a couple of ticks of the highs for the year. Support has therefore continued to hold. Friday’s candle was a doji, which suggest indecision and some resistance, not unsurprisingly at the highs of the year. The index could therefore go either way this week depending on the outcome of a likely test of 1470.

As surprising as it may seem, especially with all the chaos and uncertainty around the globe, a clear break above 1470 may open the way for a move higher towards all time highs. If the S&P 500 can clear 1470, there is little in the chart by way of resistance to stop such a move. Of course, there are many other factors that may get in the way, such as the U.S. Fiscal cliff, but technically speaking it is a possibility.

The Dax opened the week lower but found support around 7200 and has since put in a good recovery and may test the highs of the year in the week ahead.

Commodities

December Gold reached its highest level since March but failed in a test of $1800, which coincides with the March highs. If the yellow metal can clear $1800 there is little in the way of resistance on the chart to suggest that it would not make a move towards last year’s all time highs.

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 remained flat for the week but had moved around during the course of the week. The weekly charts show three consecutive spinning tops/doji patterns, which suggest that the market is unsure of future direction. A break above the recent consolidation would suggest a move to our next target at 3800 was on the cards.

Last week we wrote on Crude “However, the long-term trend is still down for Crude and we may yet see a move down towards $88”. The low for Crude was $87.80 slightly surpassing our $88 target during the week before a mild recovery. The trend is still down and a test of last week’s lows likely.

Currencies

The dollar index did rise initially last week but then resumed the longer-term downtrend as the dollar resumed recent weakness. The Pound continued to find resistance at $1.63 and was lower during the week before recovering and ending the week flat. If $1.63 can be cleared, the next target would be around $1.67 but for now that resistance level is proving to be a big obstacle.

The dollar did manage to advance against the Japanese Yen, the Aussie and New Zealand dollars but was weaker against most of the other majors. It is now close to a change of trend to down against the Swiss franc.

Interest rate futures

The 5 year T-notes briefly hit new all time highs but were rejected once more as expected, so although the trend is still up, there is undoubtedly resistance at the highs and limited upside potential. All upside moves seen recently are effectively running into brick wall resistance. The trends for now all remain up in this sector.

The 30-year T-bonds remain the weakest market of the sector and will likely be the first to give a confirmed change of trend to down.

Good trading

Phil Seaton

www.LSTrader.co.uk