Weekly Update 26th August 2013 – LS Trader

Stocks have had another mixed week, and although the long-term trend for stocks is still clearly up, short-term price action is less clear. For US stocks the Nasdaq 100 remains the strongest and may breakout again to new highs soon, with a slightly upward seasonal bias between now and the first few days of September.

Stocks

The S&P 500 fell below the 50 day moving average and continued lower, finding some support at 1631 before moving higher once more. The trend remains up but as August draws to a close and the weakest month of the year for stocks, September, being just a week away it remains to be seen as to whether we will see new highs again this year or whether weakness will resume and take stocks lower. September often begins with strength, for 2-3 days following Labor Day (2nd September) and then deteriorates into the weakest month of the year for US stocks. However, price action is far more important that seasonal tendencies, with the current trend being all-important.

The Nasdaq 100 traded in similar fashion to the S&P, this time finding support at just over 1650 basis the September contract. The trend here is still up and the Nasdaq remains stronger than the S&P 500 with new highs and a resumption of the trend looking more likely.

The Dax remains the strongest of the indices that we trade at LS Trader, but continues to trade sideways within a box range. A break to the upside above 8464.5 basis September could prove interesting and would likely lead to a test of the highs of the year. The long-term trend remains up for the whole sector at present.

Commodities

From last week on grains: “With the strongest 2 markets in the sector being soybean meal and soybeans, these 2 will most likely be the first to breakout to the upside should short-term strength continue.” Both these markets made explosive moves to the upside, with soybean meal advancing 8.59% for the week and soybeans advancing 5.46%. The trend for these markets is clearly up and both remain bullish. Soybeans may encounter some resistance at 1333 basis the November contract, but if this level can be cleared a continuation to the 2012 highs may follow. The rest of the grains sector remains entrenched in a long-term downtrend and lower prices are still expected.

The metals sector has seen continued short-term bullishness. However, the trend for the sector as a whole is still down so the current strength in the longer-term timeframe is still viewed as corrective. Considerable further strength, particularly for gold and silver will be required before a change of trend and a more bullish outlook would be in place. Palladium and copper for now look the most likely to complete a change of trend to up, but further strength is required in these 2 markets also.

Currencies

The currency markets have become increasingly volatile in recent weeks and for the most part without trend. Overall the long-term trend favours the dollar, the Euro being the exception, where the trend is now up. What is of critical importance for the dollar is the June low at 80.61 on the dollar index. As long as this level holds, the trend remains up for the dollar index and indeed the dollar overall.

GBP/USD is perhaps the most interesting currency market at present. Having failed to follow the Euro higher and also failing to take out critical resistance to give a change of trend to up, the trend remains down with a truncated rally, which may lead to an acceleration lower and a resumption of the longer-term downtrend. This scenario will be voided should the June high be broken to the upside.

Interest rate futures

Interest rate futures have had a mixed week with all markets in the sector continuing the downtrend and ending the week lower with the exception of the long bond. The trend is down across the board with the longer-term markets near their lows of the year. We continue to look for lower prices and higher yields over the coming months, with some corrections higher along the way.

Good trading

Phil Seaton

Weekly Update 19th August 2013 – LS Trader

In last week’s update we wrote that the major indices were between all time highs and near-term support and that one of those levels was likely to give way. That turned out to be correct as the S&P 500 broke through near term support and moved lower. The longer-term trend is still up for stocks but there is definite weakness in the near term. Whether this continued sufficiently to give a change of trend to down over the coming weeks remains to be seen. August is, as we have mentioned many times before, often a treacherous month for stocks.

Stocks

The S&P 500 was unable to push to new highs and sold-off through decent short-term support, bringing the trend to an end for the time being. The longer-term trend is still very much up but weakness is evident over the past 2 weeks. This was the second consecutive down week for the S&P 500, this week closing lower by 2.08%, which has led to the index closing right on the oft-watched 50-day simple moving average. It is now possible that we will see a further slide over the next 2 weeks towards the June lows and major support at 1553 basis the September contract.

The Nikkei 225, still the weakest of the indices we trade at LS Trader, managed a small advance for the week and the trend is still up. However, the Nikkei will, as we wrote last week, almost certainly be the first of the indices we trade to break lower and give a change of trend to down.

Commodities

The longer-term bear market in the grains markets is still in effect (exceptions being soybean meal and soybeans) in spite of large up-side moves this week. With the exception of wheat, which remains firmly entrenched in a downtrend, the remaining grains markets all moved higher for the week, some making sharp moves higher. With the strongest 2 markets in the sector being soybean meal and soybeans, these 2 will most likely be the first to breakout to the upside should short-term strength continue. For now, strength seen in other markets in the sector is viewed as corrective.

The energy sector has continued with recent strength, led once more by the strongest markets in the sector, Brent and Light crude. The other markets in the sector still remain in long-term downtrends but both heating oil and no leaded gasoline could confirm change of trend as early as this week should strength continue.

Cotton has another explosive week higher, easily taking out the highs of the year, as we indicated may happen in last week’s update.

Currencies

As we wrote last week, the long-term trend has been up for the dollar index and for the dollar for the majority of the year to date, and it still is. However, recent dollar weakness has pushed several markets, including the index to the cusp of a change of trend. The dollar index though still remains above the August lows of 80.89 basis September, and more importantly the June low at 80.61. As long as these levels hold, the trend remains up for the dollar.

As before, critical resistance at $1.3423 basis the September Euro contract continues to hold. This level, as with the levels mentioned above for the dollar index, is key to near term price direction. The Euro and the dollar index are almost a perfect inversion due to the heavy weighting of the Euro in the index, so with both markets near critical support and resistance levels respectively, we should get a resolution soon for the dollar which will filter through to other major currencies. If the weakness that has been seen this week in stocks continues, it is likely that dollar strength will resume.

Interest rate futures

In last week’s update, we wrote that in spite of recent short-term strength, the odds slightly favoured lower prices and a resumption of the downtrend as that was still the direction of the long-term trend. The entire sector broke lower, led by the long-bond, which fell to new lows for the year and also the lowest level since late 2011. This sector still has plenty of potential to move lower over the coming months, with yields looking set to rise longer-term, prices, which are the inversion of yields, should continue lower.

Good trading

Phil Seaton

Weekly Update 11th August 2013 – LS Trader

Stocks were unable to push on and reach new highs but the trend remains up. The major indices remain between all time highs and near-term support and one of these levels will give way in the not too distant future.

The long-term trends are still up for stocks and the dollar and down for commodities and bonds. However the recent dollar weakness has pushed several of the currency markets to within range of confirming a change of trend. Whether we do actually see moves sufficient to give a confirmation of a change of trend remains to be seen. Price action over the next couple of weeks will answer that question.

Stocks

The S&P 500 came within a third of a point from new all time highs but was unable to break through. We may see another attempt at new highs during the coming week. The trend is clearly up and it will take quite a decent-sized sell-off for that to change.

The Nasdaq 100 has traded in similar fashion to the S&P 500, as is the norm. This index also is within touching distance of its highs for the year. The major difference between these two indices as that one is near multi-year highs but a long way from its all time highs, and the other is near all time highs.

The Nikkei 225 remains the weakest of the indices we trade at LS Trader, following its sharp decline from the end of May. That large decline was subsequently retraced by a little over 61.8% but the index has been trading gradually lower over since. The Nikkei will almost certainly be the first of the indices we trade to break lower and give a change of trend to down, but further weakness is required before that happens and for now the trend here remains up, as it does for the other indices

Commodities

Grains markets have continued with long-term weakness and as before only soybeans and soybean meal remain in a long-term uptrend. The latter two grains markets have had a volatile week during which the moved sharply lower and then recovered. The extent of long-term weakness in other markets in this sector suggests that these two markets will break down to give a change of trend during the coming weeks.

The energy sector has seen some volatile moves this week with most markets moving sharply lower during the first half of the week and then putting in a decent recovery. The trends remain mixed for the sector at present, but are mostly down, the crude markets being the exception.

Cotton made an explosive 3-day move to the upside to bring the market to within a whisker of the year’s highs. A small corrective move was seen on Friday but we may see the year’s high tested and exceeded soon.

Currencies

The long-term trend has been up for the dollar index and for the dollar for the majority of the year to date, and it still is. However, recent dollar weakness has now extended for several weeks and this weakness has brought a change of trend to down for the dollar against several of the majors to within range, so much so that we could see a change of trend confirmed in some currency markets this week.

The Euro once again fell short of reaching critical resistance, which remains in place at $1.3423, but did come close and that level may be tested this week. If it is, we will likely see a test of support for the dollar index due to the near perfect inversion of these two markets. Other markets, such as the Swiss Franc and British Pound are also within range of changing trend in the next week or so, should dollar weakness persist.

Interest rate futures

Interest rate futures crept marginally higher over the course of the week but the trend is still down across the sector. The 5 year T-notes crossed above the 50 day moving average this week and are the first market from this sector excluding the 3-month markets to do so. The 10-year note could test the 50 MA this week but the 30-year T-bond will require a break above medium-term resistance to do so. With the long-term trends still down, the odds slightly favour lower prices and a resumption of the downtrend over an extended rise.

Good trading

Phil Seaton

Weekly Update 4th August 2013 – LS Trader

In recent weekly updates we’ve been writing about the importance of the 1700 level on the S&P 500 and have been suggesting that this psychological level will likely determine whether the rally has more legs or whether a correction is imminent. Having failed several times, the S&P 500 finally cleared this key level and perhaps more importantly, closed the week out above it. This would suggest further strength is likely, at least in the near term.

Many markets have been quite volatile this week, which is often expected during the week of the FOMC meeting. The long-term trends however remain unaffected and are still up for stocks and the dollar and down for commodities and bonds.

Stocks

As mentioned above, the S&P 500 finally cleared 1700, posting new all time highs once again. The Nasdaq 100 was the most bullish of the indices with the September contract closing the week some 80 points higher than its low for the week.

The Dax also had a bullish week, which was quite volatile and saw some gaps on the daily chart. Unlike its American counterparts, the Dax remains below its highs of the year, something that may change soon as there may be sufficient momentum to push this market higher to test the highs of the year. The Nikkei had a strong second half to the week and having found support around 13,500 rallied 1000 points in 3 days. The target here will be a test of

Commodities

From last week: “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.” Crude did indeed correct but not sufficiently to change the long-term trend, which is still very much intact. Friday saw an attempt at taking out the local top but the market was unable to clear that level. We may see another attempt at that level this week.

Also from last week: “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.” Grains have continued the long-term downtrend, led lower by corn. The soybean sector has also been heading lower, led by the weakest of the complex, soybean oil. Currently from the grains sector, only soybeans and soybean meal remain in a long-term uptrend, but if recent weakness continues in the impulsive manner seen in recent days, that will soon change.

Currencies

The dollar has been a mixed bag and has seen strength and weakness at times during the past week against several of the majors. Considerable weakness has been seen in the commodity-based currencies, lead by the Aussie, which remains in an aggressive downtrend. Overall the long-term trends continue to favour the dollar.

We suggested last week that the 61.8% retracement level of the recent decline may prove to be a turning point for GBP/USD and that’s exactly what happened. The pound declined from within a few pips of that level, dropping 3 figures before recovering strongly on Friday. The longer-term trend remains down.

The Euro managed to clear the $1.33 level but has been unable to reach critical resistance, which remains in place at $1.3423. The Euro remains the most likely of the major currencies to confirm a change of trend to up against the dollar, but has so far been unable to do so.

Interest rate futures

The long-term trend futures ended the week marginally lower to flat and the trend remains down. Weakness seen on Thursday was largely corrected on Friday so the markets are clearly uncertain of near term direction.

Good trading

Phil Seaton