Weekly Update 27th May 2013 – LS Trader

The past week has seen stocks hit new all time highs but then sell-off quite steeply in a move that may well be the market top for the time being. Whether this was actually the top, and a major top at that remains to be seen. Unusually, the dollar also corrected at the same time as stocks, so the unusual short-term price correlation between stocks and the dollar continues. We expect that their historical inverse correlation will resume soon.

Stocks

Last week we wrote that although stocks were still clearly in an uptrend that we were likely much nearer to the end of that uptrend than the beginning. Price action this week has seen stocks reach new all time highs again, but then sell off. As yet this has not terminated the uptrend, which may well yet resume. However, we may look back in time and see that this week was in fact a major top. Time will tell.

We also mentioned last week that sentiment in the Nasdaq 100 had reached 93% bulls, a level not seen in over 6 years and before the 2008 crash. Typically, such extremes in sentiment come near market tops, but the markets can continue to rally from those levels. This was seen this past week with bullish action taking the index up to a new multi-year high at 3052 before shedding 90 points in 2 days. As with all the stock indices that we trade at LS Trader, the long-term trend is up but the markets are under pressure in the near term.

Last week we wrote that there was little in the way from a technical standpoint to prevent the Nikkei from reaching 16000. The market rallied early in the week and exceeded 16,000, hitting 16,050 before embarking on a very steep 2 day sell-off that has brought the trend to an end for the time being. The long term trend remains intact but we may now see further price declines to 13,695.

Commodities

As we have been writing in recent weeks, we were still looking for the recent crash lows in both gold and silver to be tested again and we did see that in silver, but not in gold. Both metals subsequently bounced from their respective lows for the week. Although the trends are clearly down for both markets, the probability of a bounce increases as time goes on.

The very long-term chart structure and extent of recent selling on lumber suggests that this year’s highs at 409 posted back on the 11th March may be a multi-year top. Lumber has sold-off for 8 consecutive weeks, so a bounce can be expected near term, but longer term the trend is firmly down. Any selling is therefore likely to be corrective in nature and relatively short lived. Over the coming months we may see lumber continue to work lower towards the 2011 low around 257.

Currencies

The dollar has corrected against most of the majors over the past week, but the longer term dollar uptrend remains intact. The upside target for the dollar index remains in place at 8481 for the June contract, but the index may fall further near term before the longer term advance continues.

From last week on USD/JPY: “A correction is looking due here based on waning momentum but price action has yet to confirm or suggest any weakness so we can continue to look higher until there is price action to the contrary.” The dollar did push to new highs for the current move on Wednesday but then started to decline. The trend for now looks as though it is under extreme pressure and may terminate in the coming days. A move below parity would suggest further declines towards 9700.

Interest rate futures

Interest rate futures have been lower across the board over the past week, and although the long-term trend is still up, that may now be the case for much longer. A test of key support looks likely in the coming weeks, leading to a change of trend to down if the test is successful.

This week sees the June contract expire and roll forward to September.

Good trading

Phil Seaton

Weekly Update 20th May 2013 – LS Trader

Stock indices continue to rise to new all time highs and may yet continue to rise even though the current move is clearly extended. The LS Trader system is currently long all of the stock indices that we trade and each of these trades have been highly profitable, in particular the long trade on the Nikkei 225

As we have been expecting and writing in recent updates, the dollar continues to gain ground and we could be in the early stages of a dollar bull market. There will be corrections along the way but the overall trend for the dollar looks to be higher for the foreseeable future. This is a particularly interesting trade with great possibilities, especially since the dollar is rising at the same time that stocks are rising. This is not something that normally happens as usually the dollar rises as stocks fall. This suggests that once stocks do eventually roll over that the dollar’s advance will accelerate.

Stocks

As written above, stocks have continued to press higher and may yet continue higher. With stocks at all time highs there is no doubt that we are currently in a bull market. That said, we are likely much closer to the end of that bull market than the beginning, which effectively began back in March 2009.

Sentiment in the Nasdaq has reached 93% bulls, a level not seen in over 6 years and before the 2008 crash. This does not mean that prices cannot rise further, as based on the current momentum the odds favour higher prices, but it does suggest that once the current run ends, the sell off will be nasty. This goes for U.S. and European stocks.

The Nikkei continues its amazing bull run, clearing the psychological 15,000 level as we expected may happen last week and also going on to reach and exceed our next target at 15,180. The Nikkei now stands at its highest level since December 2007. There is little in the way of technical resistance to prevent a continuation higher towards 16,000.

Commodities

The trends for both gold and silver remain very much down with key resistance still holding firm. The inability for these markets to clear those resistance levels has continued to exert a downward pressure on these markets. As we wrote last week, we continue to look for another test of the recent crash lows.

Commodity prices have continued the longer term downtrend for the most part with only a few exceptions. The energy sector has pushed higher in the short term but the longer term trends still remain down. Strength has also been seen in the soybean complex but the trend overall for grains is still down. From the metals sector, the only remotely bullish market at this time is Palladium.

Currencies

From last week on the dollar index: “If 8366 is exceeded, the 2012 highs will be the next target around 8481”. Basis the cash market, the dollar index did already take out the 2012 high but June futures still have a way to go and the target for June remains at 8481.

It’s been another strong week for USD/JPY and the June contract has pressed higher to 10318, on the way to our target at 105. A correction is looking due here based on waning momentum but price action has yet to confirm or suggest any weakness so we can continue to look higher until there is price action to the contrary.

As we wrote in last week’s update, we are looking for the dollar to continue to rise over the coming weeks and still expect that rise to exert a downward pressure on commodities and cap much further advances for stocks.

Interest rate futures

The longer term trend still remains up for the sector but the extent of recent selling still suggests lower prices near term. A test of key support looks likely in the coming weeks, leading to a change of trend to down if the test is successful.

Good trading

Phil Seaton

Weekly Update 12th May 2013 – LS Trader

Stock indices have had another good week and once again new all time highs have been posted. Sentiment levels remain at exuberant levels, which often precedes a dramatic sell-off, but for now the bull market remains intact and prices continues to rise.

We have seen the dollar and stocks rise this week which is unusual as these two sectors are historically inversely correlated, meaning that for the vast majority of time they will move in opposite direction. This generally means that one of the two sectors is “lying” and that the normal inverse correlation will resume in short order.

Stocks

As we have written in the past two weekly updates, we continue to favour the bullish scenario as long as key support on the S&P 500 holds and this remains the case at present. At the end of the day, even with sentiment levels pointing to a sharp correction, price action is king.  As long as prices continue to rise it’s essential to continue to follow the trend until there is price action that gives evidence that the trend is over. Many bears have been run over by this advance by foolishly trying to pick a top and shorting the market. Based on COT data this includes a large amount of commercial funds that have continually tried to fade the trend in recent weeks. The LS Trader system has however continued to profit from the bull market in stock indices and will continue to follow the trends up as long as they remain intact, however long (or short!) that may be.

The Nikkei continues its bull run, this week advancing by another 4.26% and finishing the week higher for the sixth straight week. A test of the psychological 15,000 level looks to be on the cards soon, with the next chart resistance coming in at 15,180. The index currently sits at its highest level since June 2008.

Commodities

The scenario for gold and silver remains the same as has been for the past two weeks. The trend is clearly down for both metals and tests of key near term resistance have failed, as resistance continues to hold. As long as this remains the case then tests of the recent crash lows remain on the cards with the prospect of lower prices. If resistance is broken then a further advance to test the underside of the shelf of support in each respective market may follow. In both cases, prior support should act as resistance so only a move above the major support lows that held for long periods of time for gold and silver would change the long term bear view.

Currencies

From last week on the dollar index: “…last week’s low, which also correlated with a bounce from the 200 day moving average, may be the bottom for the time being and potentially the beginnings of a new uptrend which may test the April high at 8366 and further out a test of the 2012 high at 8481.” The index continued its advance, hitting a high for the week at 8352, just pips short of the April high. If 8366 is exceeded, the 2012 highs will be the next target around 8481.

The dollar did have sufficient momentum to finally break parity against the Yen as we indicated may happen. We now look to previously identified targets at 105.

Overall we are looking for the dollar to continue to rise over the coming weeks. This will likely pressure commodities further and may put a lid on further stock index advances. Interesting times are ahead with trading opportunities aplenty.

Interest rate futures

Last week we wrote: “The selling on Friday was so extreme that the price action engulfed prices for the prior 8 trading days. Such extreme selling is normally an indication of a reversal so we may see lower prices near term.” This week has seen a continuation of the selling that was initiated during the prior Friday. The longer term trend remains up for the sector but the extent of the recent selling suggests lower prices near term and a possible test of key support, which if broken would result in a change of trend to down.

Good trading

Phil Seaton

Weekly Update 5th May – LS Trader

Stocks have once again reached new all time highs and Friday saw some exuberant buying and price action in several markets. The best six months of the year for stocks are now over and we enter the historically weak May to September period. As we wrote last week, this does not mean that prices will move lower over this period and the near record levels of bullish sentiment may continue to drive prices higher. However, as a warning for stock bulls, when sentiment is at such extreme levels when the sell-off does eventually appear, it can often be swift and deep.

Long term trends are still up for stocks, bonds and the dollar and down for commodities. For the time being none of these long term trends look like they will change in the near term.

Stocks

We wrote last week that we would continue to favour the bullish scenario as long as key support on the S&P 500 held. This week has seen stocks push higher and reach new all time highs. This led to the S&P 500 moving above 1600 for the first time in history and one argument for the bulls is the fact that the index managed to close above that threshold.

The Dow 30, which is not a market we trade at LS Trader due to it’s historical lack of trending properties, briefly cleared the psychological 15,000 level on Friday but then swiftly reversed in what was quite a volatile day.

The Nikkei managed to clear the 14000 level, closing at a new multi-year high at 14200. This week saw prices reach their highest since June 2008 and the trend is still clearly up.

Commodities

We have been writing recently about our expectation for increased volatility in the metals markets and we have seen further volatility this week, albeit less than the two prior weeks. Both gold and silver have been unable to clear key resistance levels and the trend remains down. If resistance holds we may yet see a push lower to new lows for the current move.

The grains markets have been mostly higher this week but overall the trend remains down across the sector with the exception of Oats. Our proprietary trend analysis still points to lower prices in 2013 and in some cases significantly lower prices, more than exceeding the 2012 lows. For now we have to wait for price action to confirm and then jump on board for the resultant downtrend once it gets underway.

Coffee had a decent 2 day rally but we still have a bear market set up of lower lows and lower highs and we may yet see this market turn lower once more and make new lows for the year. Feeder cattle made a nice decisive move to the downside following the roll to the August contract and we now look for a further decline to test the April lows.

The energy sector had a very bullish week, which postpones the bearish outlook for the near term. Longer term the trend is still down for the sector with the exception being natural gas.

Currencies

The dollar has had a mixed week, with the dollar index falling below key support at 8178 but then putting in quite a decent reversal. This suggests that last week’s low, which also correlated with a bounce from the 200 day moving average, may be the bottom for the time being and potentially the beginnings of a new uptrend which may test the April high at 8366 and further out a test of the 2012 high at 8481.

Last week we wrote that GBP/USD may press slightly higher to the 50% retracement levels before resuming the longer term downtrend. The pound did narrowly exceed the 50% retracement level but failed to push on further. If last week’s highs can be cleared, a further advance towards $1.5750 may follow but this will not likely happen if the dollar strengthens elsewhere and weakness in the direction of the long term downtrend appears more likely.

The dollar continues to flirt with parity against the Yen and the latter part of the week saw a decent bullish recovery following earlier weakness. This momentum suggests another test of parity near term but whether there is sufficient momentum to finally break through remains to be seen. A sold break above 100 should lead to a move higher to around 105.

Interest rate futures

The trend remains up for interest rates but having pushed to new highs, a sharp reversal was seen on Friday. The selling on Friday was so extreme that the price action engulfed prices for the prior 8 trading days. Such extreme selling is normally an indication of a reversal so we may see lower prices near term. Longer term the uptrend is still intact.

Good trading

Phil Seaton