Weekly Update 28th April 2013 – LS Trader

As April moves into the last two trading days, many will be contemplating the old adage of sell in May and go away. On a seasonal basis, the best six months of the year for stocks end on Tuesday 30th. However, seasonal tendencies are just that, tendencies, and they are far from reliable. Of far more import is the technical set up, and to a lesser extent, extreme levels of bullish sentiment, which still remain in play. Extreme levels of sentiment often compliment key market turning points so although the technical picture is still bullish for stocks, a reversal cannot be ruled out.

Based on LS Trader’s proprietary trend analysis, the long term trends are still up for stocks, bonds and the dollar and down for commodities.

Stocks

The S&P 500 continued higher this week with the key factor in this market being that key support is still holding. As long as the key support level holds then we must favour the bullish scenario and a push to new all time highs. However, should support fail then the bullish scenario could quickly unravel with a swift move back to 1477 basis the June contract.

The Nikkei reached our upside target of 14000 but has run into resistance. A bearish engulfing pattern was printed on the daily charts on Friday. This 14000 level, which is psychological round number resistance, is now key to this market. The reason this level is significant is that the Nikkei is very highly correlated with they Yen, and the Yen is also struggling to hold parity with the US dollar. Basis the June contract, USD/JPY reached 9993 and has since failed to clear parity in several attempts. In line with the Nikkei, USD/JPY was lower on Friday. If USD/JPY can clear 100 then this would be bullish for the Nikkei as a weaker Yen is bullish for Japanese stocks. However, if 100 holds then both markets will likely move lower in tandem. The trends for the Nikkei and USD/JPY have both been profitable for the LS Trader system, and the system continues to ride these trends at present and will continue to do so until support is breached.

Commodities

Last week we wrote that a bounce and increased volatility can be expected in the metals and that the trends were down. This week we did see a large bounce in the metals but nowhere near sufficient to change the long term trend, which still remains firmly down. Gold ended the week higher by 4.16% and in spite of the rally from the lows posted on the 16th April, which has been impressive, lower prices may yet follow. If the bearish scenario is still playing out and a move to new lows is on the cards, then gold will need to push lower almost immediately next week, otherwise a continued rally to test the underside of the support shelf that held this market up for so long may be tested.

Silver’s 2-week rally has been less impressive than gold and the downtrend remains firmly intact for now, although if gold does continue higher then we can expect higher silver prices too. Copper prices did narrowly fall to new lows for the current move and the LS Trader system remains bearish the sector.

Currencies

The dollar index has sold off during the past 3 days in a counter trend move and may continue a bit lower near term. However, the uptrend remains intact as long as 8178 holds on the June contract. Things are amiss for the dollar below that level.

The surprise move for the week came from GBP/USD, which put in a decent rally that took cable above the 38.2% retracement of the decline from the start of the year. However, this move was not confirmed by the Euro or the Swiss franc, so may be short lived. Possibly a continuation slightly higher from here to the 50% retracement levels before a resumption of the longer term downtrend.

The U.S dollar did have another go at parity against the Yen, with Monday posting a high at 9987. However, once more this key level held firm and the longer it does so the more likely the market is to reverse. As written previously this level represents the 50% retracement area of the decline from 2007 on USD/JPY as well as the psychological parity level, so we can continue to expect strong resistance, and possibly a pull back.

Interest rate futures

The long bond advanced by 0.51% for the week and as we wrote last week may now target the 150-153 area. The 5-year note still looks as though it has further room to the upside and may yet reach 125, although the trend is clearly mature. The trend for the sector remains up.

Good trading

Phil Seaton

P.S. Take the LS Trader system for a 30 day test drive by clicking here

Weekly Update 22nd April 2013 – LS Trader

Stocks saw some selling this week, which is in line with our recent comments about sentiment levels being so high that a correction at a minimum was due. As April moves into the last few trading days, many will be contemplating the old adage of sell in May and go away. This may prove to be an excellent strategy this year as far as stock indices are concerned. Commercial funds remain heavily net short of the S&P 500 so it is likely that there will be a lid on further advances. A resumption of the long term dollar uptrend may also begin to pressure stocks and further pressure commodities. The coming weeks are likely to present more short selling than buying opportunities in most markets.

The commodity bear market has continued with heavy selling seen in metals and energies. The long term trends are mostly down for commodities, but are still up for stocks and the dollar.

Stocks

The S&P 500 has just narrowly held on to key support, forming a bull sash pattern on Friday’s daily chart. Contrary to popular opinion about candlestick patterns, the best signals come from failed candlestick patterns, so a close below Thursday’s low, which would also take out support, would be bearish and suggest further selling back to 1477 basis the June contract.

The Dax continues to lag and may be the first of the indices that we trade at LS Trader to complete a change of trend to down. The Nikkei continues to advance and this week reached its highest level since August 2008, following a weekly advance of 1.60%. The upside target for the Nikkei remains at 14000.

Commodities

We have been writing about the bear case for metals for quite a few weeks and recent price action has confirmed that view. Last week we were looking for 1425 on gold and 2400 on silver. The markets reached and sailed past those levels in the heaviest selling seen in decades. There is little doubt that the markets are now beginning to price in deflation instead of the commonly held, and erroneous in our view, expectation of inflation. Both of these markets are oversold, but as we have said many times before, markets can remain oversold for longer than people can imagine possible. That said, a bounce and increased volatility can be expected but the trends remain down and lower prices could yet be seen.

We also wrote last week that further weakness in the energy sector could be expected and we have also seen that, although the selling was steep, it was not quite of the magnitude seen in silver and gold. Commodity markets are beginning to echo 2008 and we should see substantially lower commodity prices for most of 2013.

Currencies

The dollar index pressed lower this week but has since recovered. The long term trend remains up for the index as indeed it does for the dollar against several of the majors. The dollar index should now push higher once more towards the highs of the year, especially should last week’s lows hold firm.

A dollar rally against the majors is looking imminent, especially should support levels be taken out this week. The pound in particular looks set for further declines and new lows for the year could be seen in the next few weeks.

The U.S dollar has had another good week against the Yen and once more a test of parity looks to be on the cards. As written previously this level represents the 50% retracement area of the decline from 2007 as well as the psychological parity level, so we can expect strong resistance, and possibly a pull back. However, should parity be exceeded, don’t rule out a continuation higher.

Interest rate futures

Interest rate futures have been relatively flat, but the long bond led to way this week with a 0.40% advance. There is a good possibility that we will see yields falling to record lows and new all time high prices in the sector and the long bond may now target the 150-153 area. The long term trends are up.

Good trading

Phil Seaton

Weekly Update 14th April 2013 – LS Trader

Stocks rose to new all time highs as optimism continues to rise. According to polls in America run by CNN, Americans have not been so optimistic since January 2007, just before the financial meltdown. Typically when optimism reaches such extremes, the end of a trend is near simply because everyone who wants to buy is already in the market and there are few new buyers left to push the markets higher. Additionally, according to COT data (commitment of traders) commercial funds are near record short positions still. However, the flip side of all of this is that hedge funds are at record long positions, so there is a huge fight underway in stock indices and soon one side or the other will give way.

Commodities have been mostly bearish and look to be continuing the long term bear market and the dollar has been weak for the past week.

Stocks

In last week’s LS Trader update we wrote: “The rejection of the lows on Friday led to the formation of a hammer on the daily charts, which is bullish and also confirms the support area around 1540.” The market never looked back from that level and the S&P 500 cash finally pushed to new all time highs and having reached new highs, accelerated higher, almost reaching the psychological 1600 level. The cash S&P 500 stalled at 1597.35 and then pulled back to Friday’s close. Basis the cash index, the prior highs at 1576 may now form support with that level being the top of a support zone between 1576 and 1538. Should the market fall below 1538, a sharp sell off back to 1477 as a minimum may follow. For now the trends are clearly up for U.S. stocks, which are undoubtedly in a bull market.

Global stock indices such as the Nikkei and the Dax also remain in uptrends but the Dax is lagging. The Nikkei continues to advance and this week reached its highest level since August 2008. The next upside target if the bull run continues will be the 14000 area.

Commodities

In recent weeks we have been writing about the bear case for gold and silver and have written extensively about a likely test of a critical support level in both markets, which was 2628 on silver and 1527 on gold. Both those levels were tested and broken this week with heavy selling being seen especially on Friday. We now look lower towards 1425 on Gold and 2400 on silver. The long term trends are very much down for the sector with only palladium remaining in an uptrend.

The metals were not the only commodities under pressure as the past week has also been bearish for the energy sector. Steep sell-offs were seen in all the energy markets with the exception of natural gas, which is now the only market in the sector still in a long term uptrend. Further weakness in this sector can be expected.

Currencies

The dollar has declined almost across the board this week and the dollar index tested support twice. Due to the proximity of the index to support it is very likely that support will be tested and possibly broken this week, bringing a pause to the long term uptrend for the index.

In spite of recent dollar strength, the Euro just narrowly held on to the long term uptrend, although a change of trend to down is very much within range in the near term. If the Euro can clear resistance from last week’s highs, which is also the area of the 38.2% retracement of the decline from January, we may see a continuation higher to the $1.33-1.34 area.

The U.S dollar’s sole advance came against the Yen, where the dollar pushed up almost to parity but did reach 4 year highs. Whether this level, which is also the 50% retracement area of the decline from 2007 proves too much at this juncture remains to be seen. We may see some weakness over the coming weeks before the longer term trend resumes with potential over the coming months for the dollar to push much higher.

Interest rate futures

The interest rate futures sector was marginally lower this week but the markets recovered well from lower prices seen mid week. The long bond may now continue higher towards the November highs and the 150 area, while the shorter term markets remain close to all time highs. The trend is still up and we may yet see higher prices and yields falling to record lows.

Good trading

Phil Seaton

Weekly Update 7th April 2013 – LS Trader

Stocks initially rose to new highs for the current move but then backed off. Stocks remain at a critical juncture as we covered in last week’s update and the prospect for a large move one way or the other seems increasingly likely, especially if the markets break to the downside.

Commodities have been mostly bearish and look to be continuing the long term bear market, and currencies have been mixed. Interesting times and plenty of good trading opportunities lie ahead.

Stocks

The S&P 500 cash came within 3 points of an all time high but then backed off before finding support just below 1540. The index therefore still remains below the all time intra-day high basis the cash S&P 500 at 1576.09 reached on 11 October 2007. Whether we see new all time highs still remains to be seen. The rejection of the lows on Friday led to the formation of a hammer on the daily charts, which is bullish and also confirms the support area around 1540. However, should that support area be breached we may see a sharp sell off back to the 1477 area of the February low.

Commodities

Gold ended lower for the week but has recovered since falling below the February low mid-week. This recovery is in the formation of a morning star pattern, which is a bullish reversal pattern, but the trend is still very much down. Resistance for June gold remains in place around $1620 and the market is short term bearish below that level. Silver followed a similar path to gold, but was more bearish, ending the week lower by 3.89%. Silver also fell below the February lows that we have written about for the past few weeks, and unlike gold, closed below them. This may lead to a test of the June lows around 2628. Last week’s lows now become critical support for both of these markets, and should those support levels be broken, we may see an acceleration to the downside.

Most commodities had a bearish week and crude was no exception. The long term trend for crude oil has been down for quite some time and the market was unable to complete a change of trend this week and subsequently had a bearish week as did all markets in the energy sector with the exception of natural gas.

Grains in particular had a bearish week. Regular readers will know that the LS Trader system is bearish on grains and our long term trend analysis calls for lower grains prices in 2013 that should completely erase the bull market from last year. This projection remains on track and we may see further declines in the week ahead.

Currencies

The dollar has had quite a volatile week and in particular the dollar index has been quite volatile. Thursday saw the index push to a new high for the current move, only for the market to more than erase those gains on Friday and fall to almost a 2 week low. This reversal may now pressure the market further in the short term, but long term the trend remains up. Should the index be able to clear last week’s high in the coming week, we will likely see an immediate resumption of the long term uptrend.

The Euro fell to new lows for the current move but quickly recovered and went on a 3 day rally. The Euro has so far failed to generate sufficient weakness for a change of trend to down, so the long term uptrend remains in place. We may now see the uptrend resume and we may see a continuation higher to around $1.3360.

Interest rate futures

In last week’s update on the 30 year T bond we wrote “This makes Monday’s trading key for this market as a move lower would confirm the resistance level, but a break may lead to a continuation higher over the coming weeks.” Monday was a bullish day for the long term bonds and the week culminated with a decent 3 day rally that has taken the market to its highest level in 16 weeks. The long bond may now continue higher towards the November highs and the 150 area.

The 5 and 10 year notes also had bullish weeks, with the former pushing to new all time highs. The long term trends are mostly up for this sector.

Good trading

Phil Seaton