Weekly Update 30th June 2013 – LS Trader

The dollar has continued its recent rally and looks set to move higher over the coming weeks. Stocks have also corrected some of their recent decline but whether there is sufficient strength left to test the recent all time highs remains to be seen. Commodities have continued to press lower as expected. There is potential for some large moves in several markets over the coming weeks and months so plenty of profitable trading looks to be ahead to add to what has already been a profitable year.

Stocks

The past week has seen stocks move higher, correcting some of their recent declines. How much of that was due to “window dressing” by funds to position themselves at the end of the first half of the year is debatable. For now the long term trend is still up with the highs on May 22 as the target.

The S&P 500 has twice tested its 50-day moving average from below on the last two trading days. The trend remains up but this level may provide some short term resistance early next week. If this near term resistance can be broken it’s possible that we will see a move higher towards 1650 and possibly higher. However, lower prices in the short term look slightly more likely. The trend for now remains up with near term support at 1550 basis the September contract and critical support at 1525.

The support level that we have been mentioning in the last two weekly updates on the Nikkei at 12420 continues to hold and this has led to a sideways range being formed, which may lead to an upward resolution and a move that will further correct the recent sharp declines. The trend remains up.

Commodities

Gold and silver’s recent collapse has continued this week and the move to the downside is beginning to look a bit over extended in the short-term. This does not however detract from the long term downtrend so although prices may put in a decent bounce over the next few sessions, a considerable move will be required to really put a dent in the downtrend and the expectation of lower prices. Sentiment has however reached an extreme to such an extent that there are hardly any gold bulls, normally a sign that prices will move higher short term.

August Brent crude looks did test the 100 level as expected and having pierced that level briefly intra day, moved higher again. As before a clear break of 100 will likely lead to a move lower towards the April lows below 97.

Grains prices have come under considerable pressure this week in line with the long-term downtrend and our outlook for lower prices in this sector for much of the remainder of this year. Plenty of further downside potential remains, with moves below the 2012 lows as minimum expcectations.

Currencies

The dollar has continued with strength seen in the previous week, which is in fact in line with the longer-term uptrend. The dollar index itself moved back above the 50 day moving average for the first time since early June and may now be headed back to the highs of the year with the possibility of an extended advance over the coming months.

The commodity-based currencies have all been under pressure, all three falling to new lows against the dollar. If the commodity sector continues to decline over the coming months these currencies will continue to suffer.

The Euro and the Pound have also declined over the past couple of weeks, with the latter looking set to resume the long-term downtrend soon and the former potentially moving toward a change of long term trend to down.

Interest rate futures

Interest rate futures bounced marginally higher in a corrective move but the long term trend remains down, with the prospect of lower prices ahead. As we have written before, there is plenty of potential and room for an extended decline over the coming months and indeed years, although there will clearly be some corrective moves along the way. Markets never move up or down in straight lines. The trend for the sector looks to be down for the foreseeable future and considerable strength would be required for that to change anytime soon.

Good trading

Phil Seaton

Weekly Update 24th June 2013 – LS Trader

The price action of the past week suggests that the top for stocks may be in for the summer and that further declines will be seen. This week has also seen the dollar uptrend get back on track and the inverse relationship between stock indices and the dollar seems to be returning to a more normal state of affairs.

Stocks

As we wrote last week, although price action in the short term is pointing down for stocks, as yet the declines have not been sufficient to give a confirmed change of trend, although that may follow in the coming week. The summer is historically weak for stocks so if the technical continue to point to lower prices, future declines may surprise.

We mentioned last week that support on the S&P 500 at 1591 basis the September contract needed to hold if new highs were likely to be seen near term. Now that support was broken, the odds favor further declines towards the next support level around 1525.

The Dax has shed nearly 600 points in just 3 weeks, and has seen sharp decline this week, which included a gap lower during the middle of the week. This suggests an impulsive decline is underway and that prices may head lower, although for now the long term trend is still up.

The support level that we mentioned last week on the Nikkei at 12420 held so for now the trend remains up. As before, if support there is broken we may see further declines to 12000.

Commodities

Gold and silver collapsed this week, keeping the long term downtrend firmly in place. However, the extent of the recent declines and various other technical indicators suggest a bounce may again be due. Silver this week dropped below $20 for the first time since September 2010 and has now declined 60% from the April 2011 highs around $50.

These two markets and the price action seen during the past couple of months present a great learning opportunity. Many traders who caught the downtrend in its entirety, as we did at LS Trader, would have been tempted to cash in profits around April 16th when the market made a new low for the current move. That would have been a mistake for the simple reason that the trend was still down and could still move lower. Although both gold and silver put in decent bounces during the following weeks, they never rallied sufficiently to confirm that the trend had ended. Those that had the fortitude to remain short, again as we did at LS Trader, have been rewarded with new lows and larger profits than would have been gained had profits been banked earlier in the move.

One of the core principles of the LS Trader system is to let winning trades run. This has been amply highlighted by the moves in gold and silver. Those that cash in profits early and take small profits can never by definition take large profits if they never give small profits the chance to grow into large profits. It is only by taking larger profits out of the markets over time that one can be profitable, as large profits are required to cover the losses generated by small losing trades and leave some left over for overall profit. This is one of the great keys to profitable trading that few follow.

Coffee declined another 3.63% this week and remains on course for our long term target of 107.

The energy sector was unable to push higher to compete a change of long term trend to up and price action this week keeps the downtrend intact for the sector. August Brent crude looks set to test the 100 level this week, which if taken out will likely lead to a move lower towards the April lows below 97.

Currencies

The dollar index put in a strong reversal, keeping the long term uptrend intact. The dollar in fact reversed the recent short term weakness seen against several of the major currencies and now looks set to continue higher over the coming week and months.

Interest rate futures

Interest rate futures put in one of the largest weekly down moves in years, confirming the long term downtrend. From last week’s update “As we have covered several times over recent months, there is considerable long term downside potential for this sector, it’s just really a matter of when these markets truly break down.” This week’s moves suggest a substantial decline may be in its early stages. There will undoubtedly be some bounces and corrections along the way put prices look set to decline further over the coming weeks and months.

Good trading

Phil Seaton

Weekly Update 16th June 2013 – LS Trader

As we have been covering in the past couple of weekly updates, we have been expecting further declines for stocks and that’s what we’ve seen. So far the declines have not been particularly impulsive, which for now points more to recent weakness being corrective rather than a precursor to a steep and extended decline. For now the May 22nd highs still look as though they will be the interim top, but there is still a possibility that these highs will be tested and exceeded over the coming weeks.

Stocks

Although the recent uptrend for stock has ended according to LS Trader’s proprietary trend analysis, it’s premature to say that a change of trend is imminent. Typically the summer months are weak for stocks, hence the old adage of sell in May and go away, but the only thing that can confirm a change of trend is price action, and as yet the weakness seen is insufficient for that purpose.

This Friday is quarterly stock expiration, known as triple witching. We are therefore now focusing on the September contract.

For the S&P 500, support is at 1591 on The September contract and as long as that level holds, the possibility remains for a rally back to test new highs. Should that level give way we may see further short term weakness back to around the 1525 level, where there is a decent shelf of support.

The Dax and Nikkei continue to lead the way to the downside and both indices are weaker than their US counterparts. Basis the September contract, there is support at 12420 on The Nikkei, which if broken may see further declines to 12000.

Commodities

Gold and silver both moved slightly higher this week, but not with sufficient strength to end the downtrend. The trend is therefore still down and lower levels may yet be seen, although it will not take much from current levels to bring these trends to an end.

Coffee had another week of weakness and the downtrend continues. This past week saw the September contract decline by 4.03% and our target around 107 remains in place.

The energy sector has continued with recent strength, with Brent crude this week testing the 200 day moving average. US crude has already moved above the long term moving average, as has no leaded gasoline. The trend for the sector however still remains down but US crude looks likely to be the first market in the sector to complete a change of trend to up.

The grains markets are still mixed as before. This past week saw further strength for soybeans and soybean meal, both of which hit new highs for the year. Wheat however has remained weak and is still near the lows of the year. Corn is also not far from its lows for the year but as yet has not broken down sufficiently to resume the longer term downtrend. The biggest weekly move for the sector came from rough rice, which advanced 4.10%. There is now a possibility of a change of trend to up, with an upside breakout.

Currencies

Currencies rolled from June to September on Friday so all currency commentary now relates to the September contract.

The dollar index declined for a fourth consecutive week and may possibly continue to decline to the February lows around 7950. For now the long term trend is still up, as it is for the dollar against most of the majors. However, the trend for the dollar is closer to changing to down than it has been for quite some time.

Currently the only major that is still in a long term uptrend against the dollar is the Euro. Further weakness will be required for the dollar against the other majors before further changes of trend are seen.

Interest rate futures

Interest rate futures have continued with choppy trading. Having fallen to new lows for the current move, the sector then bounced higher. The trend is still down but price action has been bullish during the second half of last week. As we have covered several times over recent months, there is considerable long term downside potential for this sector, it’s just really a matter of when these markets truly break down.

Good trading

Phil Seaton

Weekly Update 10th June 2013 – LS Trader

In last week’s update we wrote that stock indices looked set for further weakness and that we may say a sharp decline. We saw both initially last week but stocks did put in a partial recovery late in the week. The trend for now is still up for stocks but whether we see the highs posted on the 22nd May tested or exceeded remains to be seen. The dollar has also seen further short term weakness but the longer term trend still favours the dollar.

Stocks

Stocks did test support as expected, and not unsurprisingly did break support, bringing the current uptrend to an end in the near term. The longer term trends remain up for all four stock indices that we trade at LS Trader in spite of short term weakness. Whether that remains the case for much longer will be purely down to price action. If last week’s lows are broken that would suggest lower prices near term.

The S&P 500 did test and break short term support as anticipated in last week’s update, and also tested the 50 day moving average. The market fell almost exactly to the 1600 support level before putting in a decent 2 day rally. Whether this rally continues next week back up to test the highs formed on the 22nd May remains to be seen.

Commodities

Gold edged higher this week to test key resistance but was unable to break through and reversed on Friday. The trend remains down for gold as it does for silver. Silver posted its lowest close on Friday since the highs around $50 back in April 2011. Both markets have been a bit unclear on trend in the near term as both have at times looked like they were going to break higher. So far all attempts to move higher have been met with resistance and the trends remain down. The odds therefore narrowly continue to favour lower prices ahead.

Coffee has continued to trend lower over the past few weeks but has begun to trade in a narrow range over the past ten or so sessions, suggesting a breakout of this range is imminent. Resistance is in place around 130 with support at the recent lows. If the recent lows can be taken out we can look for a continuation lower, possibly to around the 107 area.

The grains markets are still mixed, with the long term trend up for approximately half of the sector and down for the remainder. Leading the way still are soybeans and soybean meal, both of which posted new highs for the current move, and oats, which has just put in a powerful 7 day rally, keeping the uptrend intact. Oats will now be targeting critical resistance at the September 12 highs, which are not far above last week’s highs. Not far beyond that are the 2011 highs, which if broken would really change the long term outlook to significantly higher in this market.

Currencies

The dollar has had another week of mixed to mostly lower price action. The longer term trends however are still up almost across the board for the dollar.

The dollar index has seen considerable weakness this week which is as expected in the face of the Euro’s rally. The Euro makes up 57% of the dollar index, so moves higher for the Euro translate to dollar index weakness. However, the trend for the index is still up in spote of it’s decline to its lowest level since February. To maintain the uptrend, the index needs to hold above the lows of the year, currently around 79.

Last week we wrote about the considerable weakness seen in the commodity currencies, particularly in the Australian and New Zealand dollars Both markets have continued lower and there remains plenty of room for lower prices over the coming weeks and months.

This Friday is quarterly currency expiration so June contracts roll forward to September.

Interest rate futures

Interest rate futures have seen some choppy price action over the past week or so. The trend is down for the sector and lower prices may be ahead, particularly if last week’s lows are taken out early in the week ahead.

Good trading

Phil Seaton

Weekly Update 3rd June 2013 – LS Trader

In last week’s update we wrote that the all time highs posted on May 22nd may prove to be the market top for the time being and this week’s price action is so far confirming that view. The indices look set for further weakness in what may eventually end up developing into a sharp decline. If stocks do correct as we expect, the dollar rally will likely resume and commodities fall. Opportunities abound over the coming weeks.

Stocks

The S&P 500 has continued with weakness and looks set to test and break short term support, followed by a likely decline further to the 50 day moving average, currently around 1600. As we wrote last week, price action has as yet not terminated the uptrend, but we may look back in time and see that the May 22 high was the top. Time will tell, but for now the trend is still up.

From the indices that we trade at LS Trader, the Dax and the Nasdaq 100 have held up the best. The Nasdaq has drifted sideways to lower with indecisive price action. A test of support looks likely this week, and the same can be said of the Dax.

Last week we wrote that the Nikkei looked set to continue its decline lower to 13,695. The Japanese index actually declined lower than that level and looks set to continue lower. Price action continues to suggest that a major top was seen at 16,050 on May 22. The long-term trend remains is still up but the recent decline has put a major dent in that.

Commodities

Gold edged higher this week but the rally has not been too convincing and has been unconfirmed by silver, which ended the week down. Whether we see new lows again during this coming move remains to be seen as price action in the short term is very indecisive. The trends are still clearly down for both metals so the odds slightly favour lower prices.

Last week we wrote on Lumber that the highs of this year at 409 may be a multi year top and that we could expect lower prices longer term, but a bounce may be seen near term due to the extent of the recent decline. Lumber did continue sharply lower, but then an equally sharp bounce followed. How far this bounce continues for remains to be seen but the trend is still clearly down.

The grains markets remain mixed, but soybeans and soybean meal continue to lead the way higher. The trend is still mostly down for this sector but some strength has been seen in a few of the grains markets in recent weeks. Longer term, grains prices still look likely to be headed lower.

The energy sector has been particularly weak with no sign of a change of trend to up anywhere in the near term. Therefore we can expect to see lower prices, especially if support levels are taken out.

Currencies

The dollar has had a mixed week, which in some markets has seen a continued correction, but other markets have seen the dollar continue to rally. Certainly at present the long-term trends very much favour the dollar across the board and a larger, extended rally will likely be seen over the coming weeks and months.

There is considerable weakness in the commodity currencies, in particular the Australian dollar and the New Zealand dollar. Weakness in these markets will likely continue if commodity markets continue to decline as we expect.

Interest rate futures

Interest rate futures were lower across the board once more and key support was tested and taken out as expected. The trend is now down for most markets in this sector but the extent of recent selling led to a decent bounce at the end of the week. As has often been the case recently, the 30-year Bond led the decline and has been the weakest market in the sector. The short-term 3-month markets were also lower.

Good trading

Phil Seaton