Weekly Update 24th November 2013 – LS Trader

Stocks have continued their slow and steady climb higher to post new all time highs yet again. The dollar has been mixed but remains weak overall. Commodities have seen some increased volatility with weakness seen in the metals but some strength returning in other markets.

Stocks

In last week’s update we wrote about the key round number levels that were in play in the stock indices. The Dow and the S&P 500 both moved above these round number resistance levels, although only just on the S&P 500, which did not move above 1800 until Friday. Of bullish significance is that fact that the index closed above this level on Friday. A strong weekly close often implies continued strength the following week so we may yet see further strength for stocks.

The Dax also posted a new all time high this week, but that was on Monday. The index spent the rest of the week moving sideways but this culminated and a new high weekly close.

The Nikkei also moved higher and the focus remains as before on further strength towards the May 22nd high of the year, which is still some 700 points above Friday’s close.

Commodities

In last week’s update we wrote “When markets don’t react to what is apparently bullish news, it suggests hidden selling pressure is present in the markets.” That hidden selling pressure became evident this week with gold and palladium breaking out to the downside. The target for gold remains at the low of the year posted on the 28th June at 1182 basis the December contract. Silver continued lower below the shelf of support that has held the market up for a couple of months and may now continue lower towards the low of the year.

Currencies

The dollar index closed lower for the week but the index has moved in a fairly narrow range for the past 2 weeks, suggesting that an eventual breakout from the range may lead to a meaningful move. For now the long-term trend is down with resistance in place at 8158 basis the December contract. If 8158 can be exceeded, dollar strength may get underway and the index may press higher towards 8300.

However, much of what happens in the dollar index will be dependent on what happens in the Euro as the index being made up of 57% Euro is almost a perfect inversion of EUR/USD. If the Euro can hold to its current uptrend and work its way back towards the high of the year at 13834, the dollar index will remain under pressure and fall back towards its low of the year.

The big move in the currency markets came from a sharp 3-day sell-off in AUD/USD. The weakness seen since the 23rd October high suggests that may have been a significant high for the time being and that new lows may be seen in the coming weeks.

The inter-market relationship between a strong Nikkei and a weak Yen continues to play out with both markets moving in line with expectations. Nikkei strength is a contributing factor to Yen weakness and this week saw the dollar push above one of our key targets against the Yen and we still remain on track for a continuation higher towards the high of the year (dollar strength/yen weakness) in the coming weeks. As we’ve mentioned many times before, USD/JPY generally moves independently to other major currencies, so dollar weakness elsewhere usually has little impact on dollar/yen.

Interest rate futures

With the exception of the shorter-term interest rate futures, the long-term trend remains down. The long bond fell to its lowest level since 18th September on Thursday before bouncing higher. The trend though is clearly down with the market below the 50-day SMA, which in turn is below the 200 day SMA. The long bond has by far been the weakest of the sector and the only market in the sector that has a current trade active.

Good trading

Phil Seaton

Weekly Update 17th November 2013 – LS Trader

Stocks have continued their recent advance, once again posting new all time highs, whilst the dollar has fallen against all but one of the majors. Interest rate futures have also risen but commodities have remained mixed. The long-term trends are up for stocks, mostly down for the dollar, mixed for interest rate futures and down for commodities.

Stocks

In last week’s update we wrote that it was premature to call a top in place for stocks and price action confirmed that view this week. The S&P 500 rose to new all time highs once again, advancing by 1.56% for the week and coming within 4 points of the 1800 level.

The Dow 30 is also closing in on the key 16000 area, another round number target, as is the Nasdaq Composite (not the 100), which is closing in on the 4000 level. Round numbers often provide psychological resistance and it is of interest that these 3 U.S. indices are all approaching them at the same time. Current momentum suggests that these levels will be cleared and that will likely be bullish, especially if all 3 indices close above round number figures, which would suggest further upside over the coming week’s possibly extending to year-end and the fabled Santa Claus rally.

From last week on the Nasdaq 100: “the index found support at the 50-40 handle on the RSI, an area that often provides support in up trending markets, so even though price support levels were broken, there may yet be another push higher to new highs for the year.” The Nasdaq did indeed continue higher and reach new highs for the year as expected, and there may yet be further upside. The key will be how the S&P 500 handles 1800.

The Dax missed out on new all time highs by 5.5 points and the price action here is far less convincing than in other indices. It is likely that due to the proximity to the high that resistance here will be tested once more.

The biggest move came from the Nikkei, which put in an extremely bullish week, advancing by some 7.43% and clearing key resistance. There is now only fresh air between last week’s high and the high of the year at 16240 basis the December contract.

Commodities

Metals all pushed lower this week with silver and copper breaking out to the downside. Gold also came close to breaking lower this week but just about held on. Of interest to the metals sector was the Yellen testimony (the next Fed Chair and a huge fan of further QE), which would by many be viewed as inflationary, suggesting higher metals prices. When markets don’t react to what is apparently bullish news, it suggests hidden selling pressure is present in the markets.

Although both gold and silver did creep higher from their respective lows of the week the moves were far from convincing under the circumstances. If metals don’t rally in the presence of bullish news, what will push them higher? For now the trend remains down across the sector and a break lower, especially if gold and silver fall below last week’s lows, may follow.

Currencies

The dollar index fell for the week and the downtrend remains intact. The dollar was in fact lower against all of the majors with the exception of the Yen. We have written many times previously that dollar/yen tends to move independently of other currency markets and that continues to be the case.

The correlation between the dollar/yen and the Nikkei is high, so with the Nikkei making a convincing move to the upside, USD/JPY may follow and new highs for the year may be seen before year-end, should a couple of key resistance levels be cleared in the next week or so.

Interest rate futures

Higher prices have been seen across the board in the interest rate futures sector but the long-term trend is still mostly down. The rally from the September lows has been sufficient only to change the trend to up for the 5 year T-note, but the move to the upside has yet to be confirmed. The longer-term markets in the sector are still lagging behind, where the trend remains down.

Good trading

Phil Seaton

Weekly Update 10th November 2013 – LS Trader

With the exception of the Dax, stock indices failed to make new all time highs and the dollar rallied. The week will however be remembered for the ECB rate cut that surprised the markets and the near unprecedented 2 minute period of volatility seen in the interest rate futures markets on Friday. The long-term trends are still mostly intact, up for stocks, mostly down for the dollar, down for interest rate futures and down for commodities.

Stocks

Following Thursday’s decline seen in U.S. stock indices, a move that was mostly retraced on Friday, it is premature to say that a top is in place for stocks. Indeed Friday’s recovery was sufficient to bring the S&P 500 back to within touching distance of new all time highs. Should these highs be taken out then the focus will return to the 1800 level on the S&P 500 and also the 16000 level on the Dow. Although the Dow 30 is not a market we trade at LS Trader due to it having historically low trending characteristics, it is nonetheless an important index and one that is heavily followed.

The Nasdaq was the index that was hit the hardest but it was noticeable that the index found support at the 50-40 handle on the RSI, an area that often provides support in up trending markets, so even though price support levels were broken, there may yet be another push higher to new highs for the year.

The Dax, as mentioned above, did briefly benefit from the ECB rate cut and hit new all time highs on Thursday before giving back a large portion of those gains. Friday once again saw the index close above 9000 but whether Thursday’s move higher and then drop lower is a terminating pattern remains to be seen. A key factor in this will likely be the performance of U.S. indices and whether the S&P 500 hits new highs once more.

Commodities

Commodities in contracts to the other sectors have been relatively quiet, with most markets in the sector continuing the longer-term downtrend. Grains, metals and energies are all still in long-term downtrends with only the odd market being the exception to that.

Gold, silver and copper all headed lower this week and look as though they may fall further to test critical short-term support over the next two weeks. Should these support levels be broken, the longer-term downtrend would have resumed following the recent corrective moves higher. Of the metals sector, only palladium is showing strength and could be on the verge of a change of trend to up with a bullish breakout this week.

In the grains sector, the long-term trend is only up for soybeans and soybean meal and both markets have been bullish this week and may also both be set to resume their respective longer-term uptrends. Rice also had a bullish week, advancing some 4.18%, but the longer-term trend here is still very much down and there is considerable overhead resistance that is likely to cap gains to the upside, in spite of recent momentum.

Currencies

The Euro made its sharpest 2-week decline for the year and Thursday’s low reached the 50% retracement of the rally that began on the 9th July. Due to the extent of the move and the fact that the trend is still up, it is possible that the Euro will bounce from current levels. However, the 2-week decline from $1.3834 basis the December contract has done considerable chart damage and may ultimately lead lower to test the 200 day moving average, which currently sits at $1.3240, basis the continuous contract.

The dollar index is obviously the inverse of the Euro, being composed 57% of the Euro, so following a possible near-term pullback, a rally further to the 200 day SMA, currently at 82.13 may follow.

Overall the trend is still down for the dollar with only a couple of exceptions, namely the Canadian dollar and the Japanese Yen. Against the latter there is still plenty of upside potential, which may ultimately lead to a rally to new highs for the year.

Interest rate futures

Friday saw a near unprecedented 2 minute period of volatility in the interest rate futures sector which saw the markets initially react positively to a data release and then reverse the entire move and then some, all in the space of less than 2 minutes! With the exception of the 5 year T Note, the trend remains down for the sector and the weakest of the sector, the 30-year T bond, broke lower, resuming the long-term downtrend. Although the overall trend for the sector at the moment is mixed, ultimately yields should rise considerably, leading to a sharp fall in prices, that once underway could continue for months at least.

Good trading

Phil Seaton

Weekly Update 3rd November 2013 – LS Trader

The dollar index rallied having falling to almost 2 year lows the previous week. The dollar rally pressured commodities, most of which ended the week lower and stocks ended the week flat. The long-term trends remain intact, up for stocks, down for commodities and interest rate futures and mostly down for the dollar. Critical support/resistance levels are very near to Friday’s close on a couple of markets, in particular EUR/USD and USD/JPY so the week ahead so give a good indication to near term price action depending on the markets’ reaction to these key levels.

Stocks

The S&P 500 posted new all time highs once again, this time at 1773.25 basis the December contract, but closed slightly off the highs at 1754.75

The Nasdaq 100 also rose to new highs for the current move, briefly moving above 3400 to reach its highest level since November 2000 at 3401.75. As with the S&P 500, the Nasdaq finished the week out with a bit of weakness, ending the week lower by 0.17%

The Dax also posted new all time highs and cleared the 9000 level and closed above it. Last week we suggested a close above 9000 would be bullish and would shift the long-term focus towards 10,000 in 2014, and the index did close above 9000 on Wednesday, Thursday and Friday. The weekly close above this key level is particularly bullish. There is however bearish divergence on the RSI, which shows a loss of momentum from the prior high posted in September.

The Nikkei 225 continues to be the weakest of the 4 indices we trade at LS Trader and is still some way off its highs of the year and obviously a long way off its all time highs.

Commodities

Commodities have for the most part fallen this week which is a move consistent with the longer term downtrend that commodities have been in since 2011. Considering the weakness seen in the dollar over the past few weeks one would have perhaps expected stronger commodity prices, since commodities are for the most part priced in dollars they have a tendency to move counter to the dollar. The fact that dollar weakness did not propel commodities higher is in line with the longer term trend picture but also suggests underlying weakness. This week’s stronger dollar may have been a factor in commodity weakness.

Both the energy and the metals have been weak, as have the grains, and there are very few bullish commodities at present.

Currencies

Last week we suggested that the bearish RSI divergence in the Euro and the doji printed on the prior Friday’s daily chart may lead to the Euro pausing for a breather before the uptrend resumed. This week saw a steep sell-off on the Euro which has taken the market back to key support. There is good support around current levels for multiple reasons so if the Euro is to find support and keep the uptrend intact it should come from nearby levels. The inverse of the Euro is the dollar index, so as the Euro fell, the dollar index rallied.

We also wrote last week about the ever-tightening daily range just below key resistance that was present on the British pound, suggesting that a break out of that tight range would yield a decent move in the direction of the breakout. That breakout did come and cable broke to the downside. That was the fifth failure at similar levels over the past 2 years and highlights the importance of that level. As with the Euro, cable is also just above a key support area so the direction for the dollar, at least as far as these two major currencies are concerned should be resolved next week.

Interest rate futures

Interest rate futures ended the week lower but the 5 year T note remains the strongest, reaching the territory of a change of long-term trend to up. The 10 year T note came to within a couple of ticks of the 61.8% retracement from the May top, and the trend remains down. The trend is also down for the weakest market of the sector, the long bond. The long bond is the only market that has seen the rally fall short of the 200 day moving average, and is also below the 38.2% retracement of the decline from the May top. For now the focus remains lower but moves above the recent high would change that, at least for the immediate term.

Good trading

Phil Seaton