Weekly Update 29th July 2013 – LS Trader

In last week’s update we wrote that the 1700 level on the S&P 500 was the next objective. This in fact is probably the psychological level that will determine whether the rally has more legs or whether a correction is about to be seen. The S&P 500 did post new all time highs once again this week but fell just shy of the 1700 level with a new high at 1695.5 basis the September contract.

The long term trends remain unchanged and as they have been for quite some time, and are still therefore up for stocks and the dollar, and down for commodities and bonds.

Stocks

As we covered above, the S&P 500 posted a new all time high on the 23rd July at 1695.5 basis the September contract. Perhaps what will be key over the coming sessions is whether 1700 can be cleared. The longer that the market remains below 1700 the more likely that will be a ceiling on the market and will lead to a correction, which is perhaps long overdue.

Stocks in reality remain the last asset class standing and once they fall, all sectors will be in a downtrend, since the longer-term trend is already down for commodities, bonds and major currencies.

Commodities

Gold managed to break through and close above 1300, which we covered in last week’s update and was effectively the line in the sand for short-term price action. The break above 1300 did lead to acceleration higher, likely fuelled by short covering, before more sideways price action. Sideways price action is typical of corrective and counter-trend moves and it is clear that in spite of short-term strength, the longer-term trend for gold, and silver, is still very much down.

The energy sector’s recent rally has fizzled out this week. Of interest certainly as far as US crude is concerned is that COT (Commitment of Traders) data shows that funds reached a new record net long position. Whilst this can be perceived as bullish, generally this suggests that funds have run out of buying power and unless small traders add to the move, a correction is often what follows.

Other markets in the sector have also pulled back, having been unable to rally sufficiently to confirm a change of trend to up. The trend is therefore down for markets such as heating oil and no leaded gasoline and further weakness may follow.

The best trending sector is currently the grains sector, which with the exception of two of the soybean markets remains entrenched in a long-term downtrend. We’ve been writing for most of this year that the technical picture suggested sharply lower prices for grains which should ultimately more than erase last year’s rally and lead to a decline below the 2012 lows, something that is very much still on target.

Currencies

Corrective price action has continued in the currency markets where dollar weakness has continued. As of yet the corrections have not been sufficient to generate a change of trend and the long-term trends therefore continue to favour the dollar.

Several major currencies are at an interesting juncture this week with GBP/USD surpassing by a few ticks the 61.8% retracement of the decline from $1.5743, which makes the current price levels a possible turning point, leading to a resumption of the longer term downtrend. The Euro has been even stronger in its recent rally, which this week stalled at $1.33. Critical resistance remains in place at $1.3423.

Interest rate futures

The long-term trend remains down for the interest rate futures sector and the recent rise still has corrective characteristics. Therefore the odds favour lower prices again in the not too distant future, so we could see new lows for the year soon.

Good trading

Phil Seaton

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Weekly Update 22nd July 2013 – LS Trader

During recent weekly updates we’ve been focusing on whether the May 22nd all time highs seen in the S&P 500 and Dow 30 would be exceeded. In last week’s update we suggested that the recent price action indicated that new all time highs would be seen, and this week has seen new highs reached. Due to the proximity to the 1700 level, that represents the next upside objective for the S&P 500.

The long term trends remain unchanged and as they have been for quite some time, and are still therefore up for stocks and the dollar, and down for commodities and bonds.

Stocks

Both the S&P 500 and the Dow 30 have reached new all time highs this past week as expected. The Nasdaq 100 has also reached new 12 ½ year highs. The Dax has also resumed its long-term uptrend and the Nikkei 225 has continued its recent recovery from the steep sell-off seen when the index posted 16050 intra-day on the 22nd May, the previous peak day for all the indices we trade at LS Trader.

New targets are difficult for markets that are at all time highs since there are no previous resistance levels to aim at. People can talk of sloping trendlines and channels etc. but they never really prove reliable. Whilst many will say that when a market reaches an all time high it is a good time to sell, more often the opposite is true and it is in fact very often a good time to buy. For our members this question is irrelevant in this instance since the system is already long the stock indices and will continue to be so until there is evidence that the trend has ended.

We can of course look to targets for markets that are not at all time highs. On the Nasdaq 100 the 50% retracement level of the bear market collapse from March 2000 to October 2002, which sits at 3189 basis our continuous contract data is one target for further out this year. However, the Nasdaq has been the one index that has seen some weakness come the end of the past week. In normal circumstances, moves higher are often led by the Nasdaq so the weakness seen in this index is perhaps not ideal from the bulls’ perspective. The Nikkei also has an obvious target at the May 22nd highs.

Commodities

Gold has continued to trade sideways for the past week and appears to be building up for a move. The direction of that move is at this stage unclear and largely dependent as to whether gold can clear and close above 1300. If it can, we may see some strength for gold over the coming weeks before the longer-term downtrend reasserts itself. However, should resistance at 1300 hold, which is very questionable due to the proximity of the market to that level, weakness may reassert itself quickly. The potential for lower prices remains, possibly as low as 1100 for gold, more precisely 1083 if resistance holds.

The energy sector has seen further strength, led by US crude, which gained another 2.2% this week. Currently only US crude and natural gas are in an uptrend from this sector but other markets are closing in on a change of trend to up having all been in long-term downtrends for quite some time. Whether there is strength sufficient to complete such a change of trend remains to be seen.

Currencies

Price action has continued to move against the dollar over the past week, but the longer-term trends still remain intact. The long-term trends are still up across the board and further dollar weakness will be required for that to change. The recent moves still have the characteristics of corrective moves so until that changes we can expect a resumption of dollar strength in the not too distant future.

Interest rate futures

Interest rate futures rose again, bringing the recent profitable downtrend to an end for most of the markets in this sector. The weakest of the sector continues to be the 30 Year T-Bond but even that market looks set to test critical resistance in the coming days. As before, any rallies seen will likely prove corrective and the potential for lower prices, both in the near and longer term remain.

Good trading

Phil Seaton

Weekly Update – 15th July 2013 – LS Trader

In recent updates we have been focusing on the May 22nd highs for stocks and whether stocks would reach new highs again following their recent correction. Price action this week suggests that new all time highs are just ahead for stocks.

Overall this past week has seen many markets make counter-trend moved, particularly the dollar. These moves have however been of insufficient strength and duration to change the longer-term trends, which still remain up for stocks and the dollar, down for commodities and bonds.

Stocks

We wrote in last week’s update that seasonality was not a reliable enough indicator to use and that the old adage of sell in May and go away was inferior to following price trends. This past week has seen stocks resume longer term trend and has seen the Nasdaq 100 exceed its multi-year highs posted on the 22nd May, with the S&P 500 just a few points way from doing the same. The seasonal weakness that we are now in does not preclude higher prices and although it’s probably unlikely, stocks could continue to rally for the remainder of the summer.

The highs the Nasdaq 100 posted this week are the highest since January 2001 so the market currently sits at 12 ½ year highs. This current rally is now approaching the 50% retracement level of the bear market collapse from March 2000 to October 2002. The 50% retracement level sits at 3189 basis our continuous contract data, and this level remains a viable target over the coming weeks. Whether that level is reached will be largely determined by other markets, in particular the S&P 500.

Last week we wrote that we may see the S&P 500 test and clear 1650 and if it did that would bring another go at all time highs right back into focus. 1650 was cleared and the market has since continued higher to within a few points of all time highs. Friday saw a doji printed on the daily chart which indicates indecision at current levels, but in an of itself a doji is not a reversal pattern and does not preclude a continuation higher. It may merely be just a pause before the next move higher. As before, the trend remains up with near term support at 1550 basis the September contract and critical support at 1525.

Commodities

Silver bounced sufficiently to bring our long running short trade to an end. This was an extremely profitable trade that lasted a full 97 days before exiting. The longer-term trend is still down and we may yet see a resumption of the downtrend. It will take a large move higher to change the trend for silver to up.

Gold however was weaker and was unable to clear resistance at 1300, although that may still happen due to the market’s proximity to that level, which represents critical resistance for the downtrend in the neat term. As we wrote last week, the downtrend is clearly mature but the potential for lower prices remains, possibly as low as 1100 for gold, more precisely 1083 if resistance holds.

The energy sector saw some strong moves, with crude oil shooting higher by 2.64%, bringing most of the energy sector along for the ride. The longer-term trends are mixed in the sector but there is undoubtedly strength in the short term.

Currencies

The dollar weakened this past week in a move that we view as corrective. The dollar index ended the week lower by 1.80% but this move is insufficient to end the trend and the trend therefore remains up. Further weakness will be required for that to change. The dollar index is largely made up of the Euro, so any moves in the Euro will be inverted by the index. This week saw the Euro spike higher from a key support area, likely forcing many Euro bears to cover, and this move was a major contributing factor to dollar index weakness.

Even the commodity based currencies, which have really taken a hit over recent weeks gained, with the exception of the Aussie, which following a bounce higher alongside other currencies during the middle of the week, ended the week at new lows for the current move.

Interest rate futures

Interest rate futures, along with many other markets made corrective moves over the past week. The longer-term downtrend remains intact and we may yet see lower prices for this sector within the current leg. As before, any rallies seen will likely prove corrective and the potential for lower prices, both in the near and longer term remain.

Good trading

Phil Seaton

Weekly Update 7th July 2013 – LS Trader

The LS Trader system has continued to perform very well, hitting new equity highs for the year for a third consecutive week and continues to benefit from some decent trends in various markets. This year has so far delivered excellent profitable trades from all sectors as decent moves have been caught in stocks, commodities, bonds and currencies.

Stocks have continued with their recent recovery and may yet head higher to test the recent all time highs set back on 22nd May. While stocks have been recovering, the dollar has continued to rally and has hit new multi-year highs against some of the majors. We continue to expect higher prices for the dollar over the coming months and lower commodity prices. Stocks continue to be resilient and apart from the dollar are effectively the last markets standing.

The ability to short sell is paramount for trading success in the current market environment and it’s a skill and a willingness that will be needed more over the coming months. Short selling is a big part of our approach at LS Trader and subscribers have experienced first hand the benefits of short selling in recent months and will likely benefit further as the second half of the year continues.

Stocks

We at LS Trader are not huge fans of seasonality, simply because it’s so unreliable. There are however some seasonal tendencies that do seem to hold water more often than not, although even then they certainly play second fiddle to current price action. The old adage of sell in May and go away has been around for a long time and is accurate more often than not. On a statistical basis, the worst 4 months of the year begin on Wednesday so any upward seasonal pressure is coming to an end this week. That does not mean however that stocks cannot hit new all time highs and continue to rally, because it has happened before. Whether it will this time remains to be seen. The trend for stocks is still up.

Last week we wrote that we may see the S&P 500 move higher towards 1650 if it could clear the 50 day moving average. It has cleared the 50 SMA and 1650 looks likely. A successful break of 1650 would bring another go at all time highs right back into focus. As before, the trend remains up with near term support at 1550 basis the September contract and critical support at 1525.

We also wrote last week “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.” The market did get an upward resolution and a fairly swift rally followed that led to the Nikkei ending the week higher by 5.09%. We often see in an up trending market support being found around the 40-50 handle on the RSI and that’s what we saw on the weekly continuation chart. This confirms that the trend is still currently up and that the recent sharp decline was just a correction.

Commodities

The bounce higher seen on the previous Friday for gold and silver has been mostly corrected this week and new lows once again look to be in reach. The LS Trader system has now been short silver for 95 trading days and we continue to ride the downtrend. The downtrend is clearly mature but the potential for lower prices remains, possibly as low as 1100 for gold, more precisely 1083, the February 2010 low. Silver may also head lower to around 1800.

Currencies

The dollar advanced as expected, reaching new highs for the year as we suggested would happen. We are now looking for 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 both declined in line with our expectations with the former resuming the long term downtrend and the latter moving to within close proximity of a trend change to down. The Euro is the last of the majors to remain in a long term uptrend so a change of trend to down will really augment the argument for substantially lower prices over the coming months for the majors against the dollar.

Interest rate futures

Interest rate futures resumed the downtrend and fell to new lows for the current move in the process. The trend is firmly down with all 5 of the interest rate futures markets that we trade at LS Trader in a long-term downtrend.

Our outlook continues to be that there is plenty of potential and room for an extended decline over the coming months and indeed years. Any rallies in the interim should prove to be corrective and should be met with further weakness.

Good trading

Phil Seaton