Weekly Update 29th September 2013 – LS Trader

Both stocks and the dollar have shown weakness during the past week but the trend for stocks remains up across the board of indices that we trade at LS Trader, whereas the trend is mostly down for the dollar. Commodities remain mixed and have not really benefitted from a weaker dollar as many would have expected they would.

Stocks

The S&P 500 failed to find support at the 1700 level, which it should have done if the trend was still good near term. This calls the sustainability of the recent rally to new all time highs into question. The weekly charts show a bearish engulfing pattern which may lead to slightly lower prices over the coming days and possibly a test of the 50 day moving average.

The Dax has traded sideways to lower for the week and may now test support in the days ahead. The Nikkei continues to struggle with resistance at 15000. Friday saw a bear sash pattern printed on the daily charts which confirms the resistance level at the top of the pattern. However, as we have mentioned previously and as was the case a few weeks ago in this market, often the best use of candlestick patterns is when they fail and move above the top of a reversal pattern, especially on a closing basis. A close above last week’s high and 15000 in particular would be bullish. Should resistance hold, then a move back to the 50 day moving average may follow.

Only the Nasdaq 100 was able to produce a higher weekly close, but even that was below the daily highs produced the week prior.

Commodities

Commodities have seen mixed price action over the past week, which is consistent with the long-term trends amongst commodity markets, some of which are up but most of which are down. The downtrend that commodities remain in overall is amply demonstrated by the CRB commodity index, which has seen the index decline from 691.09 in April 2011, to its current level of 518.96, a bear market by anyone’s standard. Grains, metals and energies all still remain under pressure with the majority of markets from each of these sectors in well established downtrends, several of them near to their lows of the year.

Currencies

The dollar index ended the week slightly lower again and came close to testing the low set the previous week. Should that low be taken out the target for the dollar index remains at the 2012 Q3 lows around 79.50. The trend for the dollar index remains down so the odds favour a weaker dollar over the near-term. The long-term trends favour the dollar in only 3 of the currency markets that we trade at LS Trader, the Aussie, the loonie and the Yen.

Both the Euro and cable pushed higher again to within a few pips of the highs they posted the previous week. The next target for cable is still the $1.63 area, a level that capped the entire 2012 period and thwarted several rallies. The target for the Euro is $1.37, the high posted in early February.

Interest rate futures

Interest rate futures were higher; continuing their recent rallies, once again led by the 5 and 10 year T notes. Due to the extent of the decline from May, the current strength is still corrective and has yet to reach the 38.2% retracement of the same. It is possible that the rally may continue to the 38.2% and possibly even the 50% retracement level before resuming the long-term downtrend.

Good trading

Phil Seaton

Weekly Update 23rd September 2013 – LS Trader

The past week was dominated by two events: the first was Larry Summers ruling himself out of the running to be the next Fed Chairman and the second was the Fed announcement that the tapering that the markets had expected was not going to happen, at least not within the expected timeframes. The first of these is largely irrelevant since nobody really knew what Summers’ policies would or would not have been so the reaction was not really due to any real change and is really a knee-jerk reaction. The second is perhaps more important but again, its long term relevancy is in question.

 

The Fed had previously claimed that it would be more transparent by giving forward guidance but then reversed its previously stated position of tapering, a position that it had only announced in June. Bernanke’s willingness to reverse his previous guidance so quickly is perhaps what surprised more than the event itself, with the whole episode making forward guidance the exact opposite! This surprised many and amply highlights the foolishness of Fed watching and even forward guidance itself. The near-term impact was a weakening of the dollar and a rise for stocks and many commodities, moves which have largely been erased in the 2 days following. The longer-term impact of this is as yet unknown but the impact on long-term trends has been negligible apart from a continuation of the recent shift towards dollar weakness, a shift that was underway ahead of either of this week’s events. Stocks remain in a long-term uptrend while bonds remain down. The trend for commodities and the dollar is mixed.

 

Stocks

The S&P 500 rose to new all time highs this week, easily clearing the 1700 level. New all time highs were posted on Thursday at 1726.5 basis the December contract. However, following Thursday’s high some weakness has been seen and there was a weak close on Friday. This close was just above the key 1700 level, which in theory should now act as support due to change of polarity (prior resistance acts as support once resistance is broken). Whether it does or not will be answered quickly on Monday.

The Nasdaq 100 also had another good week, trading in similar style to the S&P and reaching new 13 year highs (highest level since late 2000), but as with the S&P 500, had a weak end to the week. In effect, U.S. stocks have all but erased the Fed’s no taper rally.

The Nikkei and Dax also rose but both also ended the week with selling. As we wrote last week, the long-term trends are therefore still very much up for global stock indices and the odds therefore favour higher prices over the coming weeks. This still applies. The VIX fell again, reaching new 5-week lows so complacency remains high, which as we also noted last week is often a precursor to sharp declines.

Commodities

A glance at the weekly metals charts, in particular that of gold, show how volatile the past week has been, but also shows that come Friday’s close, the most important price of the week, nothing has changed. Gold printed a long-legged doji on the weekly chart which represents total confusion in a week that has seen wild swings higher and lower during the week, only for the market to close pretty much where it began. Silver was the most volatile, but the rally following the Fed meeting has almost completely been erased and silver may break to the downside again as early as this coming week. Both gold and silver’s failure to clear the August highs may prove telling over the coming weeks.

The important thing is that the long-term trends remain intact and that often the biggest up moves happen in bear markets. Metals are still in a bear market set up and may yet move to new lows for the year.

Currencies

Last week we wrote: “For the uptrend to remain intact, the dollar index needs to resume higher from current levels.” The dollar index did not resume higher and instead took out support, changing the trend for the index to down. In spite of a small recovery on Thursday and Friday, lower prices look to be on the cards with the next target being the 2012 Q3 lows around 79.50.

In last week’s update we wrote that following its recent breakout, GBP/USD may push higher to test $1.60. It did and eventually pressed higher to $1.653 basis December. The next target will be the $1.63 area, a level that capped the entire 2012 period and thwarted several rallies.

Interest rate futures

Interest rate futures continued their recent corrective rallies, led by the shorter-term markets. Further strength may be seen in the next week or so but the longer-term trends remain unaffected by the recent moves and lower prices will likely follow with a resumption of the long-term downtrend later in the year.

Good trading

Phil Seaton

Weekly Update 16th September 2013 – LS Trader

We have written in recent weeks and many times over the past few years about the unreliability of seasonality and stated that seasonality alone should never be used to form the basis of trades and that ultimately, trends and price action were far more important. This sentiment has been confirmed once again by price action seen so far this month, which has run counter to seasonal tendencies.

From the beginning of the month, stock indices have continued to press higher in the direction of the long-term trend, in what is historically the weakest month of the trading year. The dollar has been less decisive and is mixed, whilst commodities are mostly pushing lower in the direction of their longer-term trend.

This week sees the 2-day FOMC meeting. The key to remember is that it is not the news itself that is important, but the markets’ reaction to the news that drives price action.

Stocks

The S&P 500 had a good week, advancing by 2.14% and pressing once more back towards its all time highs at just ticks below the 1700 level, basis the December contract. The index shot higher from the open on Monday, moving decisively back above the 50-day moving average.

The Nasdaq 100 also had a good week and is still the leader of the indices we trade at LS Trader by way of being the only one of the four that is at its highs of the year. Cleary though from a much longer-term perspective the Nasdaq is weaker since it is still a long way below its all time highs posted 13 odd years ago, whereas the other indices are just points below their respective all time highs.

The Daxalso had an excellent week, advancing by 3.03% and taking out the top of the recent range, suggesting that a test of the year’s highs and possibly higher is the game over the coming weeks.

The December Nikkei had another strong week, gaining another 3.99% to add to the previous week’s 4% advance, keeping the uptrend very much intact. Last week we wrote: “Of short term interest is the evening star 3-day bearish reversal pattern that has formed right at resistance. Often the best use of candlestick patterns is for when reversal patterns fail, and the markets break out above the high of the pattern (in the case of bearish reversal patterns). A move above last week’s high, particularly on a closing basis, would be bullish.” As anticipated, the market did break out above the pattern, and strength followed, keeping the long-term trend intact.

The long-term trends are therefore still very much up for global stock indices and the odds therefore favour higher prices over the coming weeks. The VIX however, known as the fear index, has fallen to 4-week lows, indicating that complacency is reaching new high levels, often a precursor to sharp declines.

Commodities

Soybean meal and soybeans, the only two markets from the grains sector still in a long-term uptrend had very volatile weeks, with large swings seen in both directions. In both markets the rising windows mentioned in the last two weekly updates have held firm on a closing basis, so the bottom of the gap is still providing support for both markets. The other grains markets are not faring so well and have either resumed or are on the cusp of resuming their respective long-term downtrends.

Considering recent dollar weakness, the weakness that has resumed in the metals sector suggests that new lows may be forthcoming over the coming weeks, as commodities being priced in dollars generally move inversely to the dollar. This suggests that once the dollar resumes strength, commodities and metals in particular will come under further pressure. The trend for the entire metals sector is down and the corrective rallies seen over the past couple of months or so look to be over.

Currencies

Indecisive trading remains characteristic of the currency markets and the dollar in particular in recent weeks. The longer-term trend still slightly favour the dollar, but the dollar index is perilously close to support. For the uptrend to remain intact, the dollar index needs to resume higher from current levels.

In last week’s update we wrote about a possible test of key resistance in GBP/USD and the market did test and exceed resistance, giving another change of trend against the dollar. Following the breakout the pound continued higher and may now test $1.60 soon.

Interest rate futures

Interest rate futures pushed marginally higher as their recent corrective rallies have continued. The longer-term trend still remains down but as we wrote last week the steps to new lows are not in a straight line.

Good trading

Phil Seaton

 

 

Weekly Update 9th September 2013 – LS Trader

Stocks did bounce higher as expected last week, possibly due to some seasonal upside bias. As we also wrote last week, that positive seasonal upside bias gives way to historically the weakest month of the year from the middle of last week onwards. We can therefore expect an up-tick in volatility for stock indices over the next few weeks, which may continue on from Friday’s long-legged doji pattern, which indicates confusion and indecision in the short-term amongst traders.

Stocks

Our focus now shifts to the December contract for stock indices so the below comments now relate to December futures. The December S&P 500 rose by 1.37% this week but remains well off the pace set by the Nasdaq. The index still remains below the 50-day simple moving average, which it tested on Friday. As we wrote last week, if this month does develop along the week path that is seen historically, we can look for a move lower towards the 200-day moving average, currently at 1550, almost 100 points below Friday’s close.

The December Nasdaq 100 posted very slight new intra-day highs on Friday but was unable to push on, pulling back to close lower. The Nasdaq still remains the strongest in terms of strength this year and is nearest to its year’s high.

The Daxrecovered some of its recent losses but is still range bound. The long-term trend here remains up but should recent lows be taken out, further short-term weak retracing the entire advance from June 24th at 7660 over the coming weeks remains a possibility.

The Nikkei had a strong week, advancing by 4% even after Friday’s sell off. Of short term interest is the evening star 3-day bearish reversal pattern that has formed right at resistance. Often the best use of candlestick patterns is for when reversal patterns fail, and the markets break out above the high of the pattern (in the case of bearish reversal patterns). A move above last week’s high, particularly on a closing basis, would be bullish. The long-term trend for the Nikkei is still up, as indeed it is for all four indices that we trade at LS Trader. However, of the 4, the Nikkei is closest to a change of trend to down should sustained weakness be seen.

Commodities

In last week’s update we wrote about the importance of the rising windows on both soybeans and soybean meal. On a closing basis both of these windows held, so they remain open and therefore still provide support. From the grains sector, only these 2 grains remain in uptrends, whereas the remaining 5 grains markets are all still in long-term downtrends. One of these is oats, which fell to new lows for the year this week, in line with our expectations of lower grains prices. Wheat came to within just over a point of its lows for the year, so the downtrend may resume this week on new lows. Corn, rice and bean oil all remain entrenched in long-term downtrends and a resumption of their respective downtrends looks to be only a matter of time.

Crude prices have experienced some volatility this week but both Light Crude and Brent Crude have rallied strongly from their respective lows of the week and remain in long-term uptrends.

The trends for gold and silver still remain down, as indeed they do for copper and palladium.

Currencies

The dollar has been very mixed again this past week, beginning with strength and ending with weakness. Three of the currency markets broke out of their respective ranges last week as expected, but have so far been unable to push on. So far the long-term trends still mostly favour the dollar. Of particular interest this week will be GBP/USD, which may once more rise to test key resistance, something that it has been close to in 3 of the past 4 weeks, each attempt being unsuccessful.

This week sees quarterly currency expiration and a roll to the December contracts from September.

Interest rate futures

Longer-term interest rate futures declined to new lows this week but all bounced higher on Friday. The trend is still down and lower prices are expected on the longer-term horizon, but the steps to new lows are not in a straight line. Friday’s strength may be the start of a short-term corrective bounce before longer-term weakness resumes. Short-term interest rates were stronger still, and the short-term downtrend looks to be under threat this week in both the Euribor and 3-month Eurodollars.

Good trading

Phil Seaton

Weekly Update 2nd September 2013 – LS Trader

Monday is Labor Day in the U.S. so many markets will be closed, leading to a shortened trading week. Stocks have continued lower since the 2nd August high but may bounce a little over the next few days due to some seasonal upside bias. That seasonal upside bias then gives way to historically the weakest month of the year, after the middle of next week. The dollar could be poised to resume strength following recent corrective price action, which may trigger further weakness for commodities. Profitable trading opportunities look to be plentiful as we move into the final third of the year.

Stocks

September often begins with strength, for 2-3 days following Monday’s Labor Day and then deteriorates into the weakest month of the year for US stocks. As we have written many times in previous years, the current trend is of far more importance that seasonal tendencies. In the short-term the S&P 500 has continued with weakness since posting the all time high on the 2nd August. This week has seen the index move and close the week below the 50-day simple moving average. Weakness may continue through this weak month down towards the 200 day moving average, currently at 1550, which also represents a key support level basis the September contract.

The Nasdaq 100 has held up better than the S&P 500 and in fact made a slight new high this week intra-day but was unable to push higher and a swift sell-off followed. The tech index remains above the its 50 day moving average, but continued weakness for the S&P 500 will likely see that level tested by the Nasdaq.

The Dax was unable to breakout higher from the box range and instead broke lower in what was one of the most bearish weeks in recent times with the index shedding 3.56%. The long-term trend here remains up but last week’s technical damage suggests further short-term weakness ahead, possibly retracing the entire advance from June 24th at 7660 over the coming weeks.

Commodities

Both soybeans and soybean meal gapped higher at the open Monday and continued recent bullishness until Tuesday, at which point selling returned which retraced much of the week’s gains.  We can now look for the gap to provide some support for both of these markets and for strength to resume. However, if the rising window (gap) is broken, further weakness may be seen. Similar price action was seen in the other grain markets, the exception being that the trend for the remaining markets is still down.

Gold reached a 15-week high this week and silver reached a 20-week high, both moves that show the extent of the recent counter-trend price action. 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 is confirmed, something that at this stage looks less likely. If last week’s highs hold, the possibility of further weakness possibly to new lows increases over time.

Currencies

In last week’s update we wrote about the importance of the June low at 80.61 on the dollar index and said that as long as that level holds the trend remained up for the dollar index and the dollar overall. Well that level did hold and the index pressed higher and now looks to be on the cusp of an up-side breakout and a resumption of the longer-term dollar bull market, should the breakout be successful.

We also wrote that the failure of GBP/USD to take out critical resistance and a truncated rally pointed to a resumption of the long-term downtrend and acceleration lower. We did in part see that this week but the decline was halted by support at $1.5400. A break of this level may lead to lower prices and a test of the next support level at $1.52. Further out we are still looking for the July lows around $1.48 to be taken out.

Interest rate futures

Bonds and T notes rolled from September to December this week. The past 2 weeks has seen mostly corrective, counter-trend price action which may continue near term. The long-term trends for the sector remain unaffected and are down across the board. The longer-term view still points to lower prices and higher yields over the coming months but a moderate correction higher may be seen first.

Good trading

Phil Seaton