Weekly Update 28th October 2013 – LS Trader

The past week has seen further strength for stocks, with new all time highs being seen as well as continued weakness for the dollar overall, with the dollar index falling to almost 2 year lows. Commodities have remained mixed and interest rates have continued with recent strength.

Stocks

The S&P 500 advanced another 1.01% for the week, reaching new all time highs once again in the process. The Nasdaq 100 also rose to new highs for the current move to reach its highest level since November 2000.
The Dax rose to new all time highs again and made the biggest weekly advance of the 4 indices that we trade at LS Trader, advancing by 1.54% for the week. Basis the December contract, the Dax briefly crossed the 9000 level for the first time but closed the week just below at 8989. Whether the index can push on from here having broken a round number remains to be seen. A decisive move and close above 9000 will have traders looking for the 10,000 level in 2014, especially as the index has advanced over 500 points in just 3 weeks.

With stocks at all time highs there are no overhead resistance levels to focus on as targets so we just have to ride the trend and see how much further these markets go.

Commodities

Commodities markets remain mixed with the long-term trend being up for a handful of markets, but down for the majority. The grains markets have been particularly weak for much of this year with 5 of the 7 markets we trade at LS Trader being in long-term downtrends, the exceptions being soybeans and soybean meal. Of these soybean meal has continued its long-term uptrend this week, reaching its highest level in 6 weeks. Meal may rise further to test the year’s high at 451.20. Soybeans came close to resuming the uptrend and may do so this week. Soybean oil, by far the weakest of the soybeans complex saw 5 days of selling this week and may be poised to break lower again in the coming days.

As far as the grains are concerned, that’s the end of the bullish story as the other markets are all showing weakness. Even wheat, which has shown some strength in recent weeks, sufficient for a brief test of the 200 day moving average, resumed selling this week, keeping the downtrend intact. Corn, which has traded in a vert tight range for the past 3 weeks is close to its recent low and may yet break lower once more towards 410, the June 2012 low.

One of the most bullish commodities at present is lean hogs. Hogs this week broke above the 90 level to reach their highest level since January 2009 and may rise further over the next couple of months to the 100 level.

Currencies

The U.S. dollar declined further, falling to new lows since November 2011 once more as the Euro, which is an almost perfect invert of the dollar index rose to new highs for the year. Now that the Euro has reached new highs for the year and cleared a key resistance level in the process we can look for higher prices, with round number target at $1.40 the next obvious objective. There is though a drop in momentum, highlighted by divergence on the RSI and the doji that printed on Friday’s daily chart, so the recent rise may be about to pause for a breather before continuing higher.

The Pound is coiling up in an ever-tightening daily range just below key resistance. Patterns such as this are normally the precursor to a sharp move one way or the other. With the trend being up and resistance being so close to the current market level, the odds favour that the breakout will be to the upside. If so, a move to the January 1 high at $1.6288 basis the continuous contract is likely. This area is however a key resistance zone as rallies over the past 2 years have stalled here multiple times. If the current rally here stalls again, that would be a fifth failure and would suggest lower prices to come. However, a clear break and close above these levels would be bullish indeed and may lead to a further advance towards the May 2011 high around $1.6631.

Interest rate futures

Interest rate futures continued their recent rally, so much so that a change of trend to up is coming within range on the 5 year T notes. Further strength will be required for the 10 year notes to change trend to up. The 30 year Bond remains well off the pace but did this week reach the 38.2% retracement of the decline from May and may continue higher to test the 200 day moving average, which currently sits at 137.31.

Good trading

Phil Seaton

Weekly Update 21st October 2013 – LS Trader

The past week has seen the dollar weaken and stocks rise, with 2 of the indices we trade at LS Trader reaching new all time highs, the S&P 500 and the German Dax. It has also seen some commodity markets begin pushing higher and interest rate futures rise. The long-term trends are still up for stocks, mostly down for the dollar, down for interest rate futures and still mixed for commodities.

Stocks

The relief rally that we wrote about in last week’s update did materialize and it took the S&P 500 to new all time highs. This rally was good for a 2.21% advance for the week and meant that the S&P 500 had rallied 100 points in just 2 weeks.

The Nasdaq 100 continues to be the strongest of the indices that we trade at LS Trader on the basis of recent price advance and momentum. This week has seen a large 3.61% advance and has meant that the Nasdaq has advanced some 232 points in just 2 weeks to reach new 13 year highs.

The Dax, still the strongest of the European indices, rose to new all time highs having cleared the previous all time high that was posted on the 19th September at 8779 basis the December contract. This week saw the index post new highs at 8869 on Friday before pausing for breath and closing slightly lower.

Commodities

Commodities have had a mixed week with some of the sector declining and some markets making decent moves to the upside. There are some early signs that the recent commodity bear market may be taking a pause as some markets are showing signs that they may have bottomed out and may be in the relatively early stages of a decent advance.

Both gold and silver had fallen to new lows for the current move, but both were once again subject to a sharp reversal as the metals sector moved higher. For now the trend is still down across the metals sector but dollar weakness may limit further declines, should the dollar continue with recent weakness.

Currencies

The U.S. dollar index did test the recent low at 79.72 as expected and indeed fell through that level to reach, by a single tick, its lowest level since November 2011. The trend for the index is clearly down and there is no evidence yet to suggest a bottom is in place, so on the basis of this index alone, lower still looks to be the game.

However, the Euro, which makes up 57% of the index is close to its high of the year posted February 1. Considerable resistance can be expected here, which may put a lid on the dollar’s decline should that resistance level hold. Similarly, the Pound is also close to its local top and not that far away from its high of the year, so there is some overhead resistance for both of these currencies to clear. The dollar index is the invert of the Euro, and with the Pound being highly correlated, resistance on both equates to support for the dollar.

Interest rate futures

Interest rate futures advanced for the week with the 5-year T note crossing the 200 day moving average and exceeding the 61.8% retracement of the sharp decline from May. The longer term 10 and 30 year markets are lagging the 5s, with the 30 year T bond still below the 38.2% retracement of the same move. These rallies are still therefore corrective and the long-term trend is still down in spite of short-term strength.

Good trading

Phil Seaton

Weekly Update 13th October 2013 – LS Trader

It’s been a volatile week in many markets, where large swings in both directions have been seen. Much of this volatility appears to be due to the various political evens in the U.S., which going on the basis of price action seen on Thursday and Friday appear to be heading towards at least a short-term resolution.

The long-term trend remains up for stocks, mixed for the dollar and commodities and down for interest rate futures.

Stocks

The S&P 500 ended the week higher by 0.85% but had been significantly lower on Wednesday, where the index fell to its lowest level since early September. In last week’s update we wrote: “The long-term trend remains up and a push to slight new highs can as yet not be ruled out, especially if a resolution is reached in the next week or so in Washington, ahead of the October 17 deadline for raising the debt ceiling. Such an agreement seems highly likely and this will probably lead to a relief rally for stocks.” The relief rally may have begun on Thursday and we shall see how long it continues.

The Nasdaq 100 is still the strongest of the indices we trade at LS Trader and following a strong recovery rally is back within range of new highs for the year. The Dax, the strongest of the European indices is also back within range of new all time highs and may breakout higher this coming week. All time highs for the Dax were posted at 8779 on 19th September basis the December contract.

The VIX had a hugely volatile week, initially rising to its highest level since July but then ending the week lower. Moves such as this highlight the market’s uncertainty as it shows extremes of fear followed by relief.

Commodities

Gold led the metals markets lower this week, breaking down to new lows for the current move and reaching its lowest price since July. This move has so far been unconfirmed by silver, which as yet has not taken out support. Copper, one of the most reliable economic indicators, hence the name Dr Copper, is also in a long-term downtrend and may break lower soon in spite of some strength seen at the end of the week. With the trend remaining down for all markets in the sector, new lows for the year are still a possibility.

On balance the trend for commodities is down. There are a few exceptions, one of which is sugar, which has made a bullish run from the low posted in July, completing a change of trend to up this week with strength. Although this move runs counter to the majority of commodity markets, there is plenty of upside potential here over the coming months. Another exception is feeder cattle, which this week completed five straight weeks of gains, advancing by 2.01% this week. The next target is resistance at 171.80 basis the November contract.

Currencies

The U.S. dollar index rallied mid-week, briefly poking above resistance but then tapering off into Friday’s close. The trend remains down and another test of the recent low at 79.72 may yet be seen. However, as we wrote last week, should dollar strength continue the recovery might continue higher to close the gap at 81.51. Currently trading in the currency markets is mixed with the trend favouring the dollar in some markets but moving against the dollar in others.

Interest rate futures

Interest rate futures ended the week virtually flat across the sector with some indecisive doji/spinning top patterns printing on the weekly charts. This is consistent with our view that the recent rally, which has now changed to sideways price action, is corrective. With the long-term trend still being down the odds favour a resumption of the downtrend, particularly if the local top posted a couple of weeks back continues to provide resistance.

Good trading

Phil Seaton

Weekly Update 7th October 2013 – LS Trader

Stocks and the dollar continue to trade in tandem, which is not the normal historical pattern where there is normally an inverse relationship between the two. This week saw stocks and the dollar weaken for most of the week but then both reversed and gained on Friday. The long-term trend remains up for stocks but is mixed for the dollar, as it is also for commodities, although the majority of commodities are currently in a long-term downtrend. Interest rate futures are also still in a long-term downtrend.

Stocks

The S&P 500 ended the week lower by 0.10% but had been considerably lower on Thursday, where it tested the 50 day moving average as expected. Friday saw a decent bounce with a bullish engulfing pattern printing on the daily chart. The long-term trend remains up and a push to slight new highs can as yet not be ruled out, especially if a resolution is reached in the next week or so in Washington, ahead of the October 17 deadline for raising the debt ceiling. Such an agreement seems highly likely and this will probably lead to a relief rally for stocks.

It was a similar story for both the Nikkei and the Dax, although their respective reversals were not quite as convincing as the S&P 500’s.

The Nasdaq 100 remains the strongest of the 4 stock indices that we trade at LS Trader and is the only one to have held above short-term support. As with the other indices, the Nasdaq 100 also printed a bullish reversal candle on the daily charts on Friday and remains the closest to its yearly highs. For now the trend remains up for all 4 indices.

The VIX had a good week in spite of considerable weakness on Friday, but the fear index still ended the week higher by 8.28%, which is not really surprising considering the political struggles across the pond. Basis the cash VIX, the highest price was registered since the end of June, which coincided with the start of the recovery rally in stocks following their steep sell-off from the end of May.

Commodities

Commodities remain mixed but the majority are still in long-term downtrends. The grains markets in particular remain under pressure as they have for much of the year to date. There are a few commodities that are in uptrends and these come from the softs and agriculture sectors and include cotton, feeder cattle and lean hogs. Sugar, which has been bullish since posting a low back in July of this year is on the verge of a change of long-term trend to up and may continue higher should a change of trend be confirmed.

The energy sector remains mixed but no leaded gas and natural gas continue to lead the way lower whereas the remainder of the sector is still in a long-term uptrend.

Metals have been quite volatile of late but the trend remains down for the sector. This week saw the weakest two markets of the sector, gold and silver, break to new short-term lows but neither has as yet been able to continue lower. New lows below the lows of the year are still a possibility.

Currencies

In last week’s update we wrote that the odds favoured a weaker dollar over the near term and that the next downside target for the dollar index was at the 2012 Q3 lows around 79.50. This past week saw the index fall to its lowest level since January at 79.72 basis the December contract, before reversing higher on Friday. The trend remains down for the index but should dollar strength continue and move above near-term resistance, the recovery may continue higher to close the gap at 81.51. However, with the long-term trend being down, lower prices cannot be ruled out.

As before, the long-term trend is against the dollar in all but 3 of the currency markets that we trade at LS Trader, the Aussie, the loonie and the Yen.

Interest rate futures

Interest rate futures pushed to slight new highs for the recent corrective rally but for the most part traded in a fairly narrow trading range, probably waiting on some agreement out of Washington. We still view the rally as corrective and whereas the shorter-term 5 & 10 year T-notes are pushing towards the 50% retracement of the decline from May, the 30-Year T-bond still remains well shy of the 38.2% retracement of the same decline. Whether the long bond reaches that level before resuming the downtrend remains to be seen. The trend for the sector is still down across the board.

Good trading

Phil Seaton