Weekly Update 29th December 2013 – LS Trader

Stocks advanced again, in line with the so-called Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January. Should this rally continue in line with the historical tendency, stocks may rally through to the end of the coming week. Regardless of whether stocks do continue to rally, the trend remains up across the board of stock indices and will do so quite well in to 2014 regardless of what happens. It will take a decent sell-off to change the trend to down in any of the indices we trade at LS Trader.

Stocks

As written above, stocks continued higher in line with historical seasonal tendencies, which led to all 4 indices that we trade at LS Trader advancing to new highs for the year. In the case of the Dax and the S&P 500, these new highs are all time highs. As far as the technical and long-term trend analysis is concerned these rallies could yet continue into 2014. The first full trading week of January as traders come back to their desks and trading volumes pick up will give a clearer picture.

Commodities

Further strength was seen in the energy markets, with Light crude managing to reach and clear the $100 level. The RSI broke above the 50-60 bear market resistance range so there may be further to run for this market, but the longer-term trend is still down. Light crude and no leaded gasoline are both still the weakest markets of the energy sector, but both are moving higher in the short-term. No leaded gas has a chance of a change of trend to up this week should strength continue.

Gold and silver both ended the week higher, as did the entire metals sector, but the trend is still very much down for these 2 metals. The RSI remains in bear market territory for gold and has still been unable to move above 50 on any advances. Silver remains slightly stronger than gold and is still above its recent lows, which may be tested this week. The 50-60 range on the RSI may also provide resistance should support hold and the market attempt any rally.

As 2013 comes to an end, the long-term trends are still mostly down for commodities but there have been some signs of life in some of them. At a minimum we should see some large bear market rallies in 2014 in several commodity markets, some of which may extend to new bull markets.

Currencies

The currency markets saw an increased level of volatility this week with some large daily moves on Friday in the dollar index, USD/CHF, EUR/USD and GBP/USD. With the exception of the dollar index this was following moves to new highs for the current move in the case of cable and the Euro, and a new low for USD/CHF. These moves were likely due to light trading volume during the holiday period, but even so on a very short-term basis are quite strong reversals. The longer-term trends though in each of these markets are still unaffected and remain as before. As with stocks, a clearer picture will emerge once traders return to their desks in 2014.

The dollar rose to new highs for the year against the Yen once more, registering new 5+ year highs in the process, as the Nikkei 225, the Japanese stock index, also hit new highs for the year. Strength in the Nikkei correlates to a weak yen, so as the Nikkei rises the yen falls.

Interest rate futures

The 30-year T bond was the subject of a huge spike higher on the 23rd December, a move that was a fat finger spike and was subsequently mostly corrected by the exchange. The actual move higher on that day was still sufficient to break above short-term resistance. The market has since been moving back towards the recent lows and may break lower again soon. The September low remains a critical support level for the long bond, and should the market eventually break below this level there is plenty of room for further price declines. The interest rate futures markets will be one of the markets to watch in 2014 as there is potential for some huge moves.

Good trading

Phil Seaton

Weekly Update 22 December 2013 – LS Trader

The S&P 500 reached a new all time high on Friday, the Nasdaq 100 a new high for the current move and the Dax is within touching distance of new all time highs. In addition, Monday is historically the first day of the Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January. Any sort of rally will see the Dax hit new all time highs and a larger rally may see the Nikkei advance to new highs for the year

Stocks

The S&P 500 found support on the RSI at 45 (in bull markets the RSI often finds support between 40 & 50). The market bounced nicely off the 50 day moving average twice this week and may yet be set for higher prices.

The shelf of support around the 9000 level that we wrote about last week on the Dax held firm, as did the RSI, which also held support in the 40-50 range. This price action and support shelf did prove critical as expected, and a rally followed, taking the market to within range of new all time highs, which may be seen next week. The weekly advance was 4.3% and the weekly chart looks much more bullish than the daily, where the advance occurred with smaller and smaller real bodies (the body is formed by the distance between the open and close, and excludes the high and low of the day), which indicates some loss of momentum at daily chart level. Nonetheless, the strong seasonal period may be sufficient for a new breakout.

Commodities

The energy sector has had a bullish week with Brent crude advancing 3.19% having found support just below 108. Light crude was not quite as strong but still had a good week and may yet test $100. This week saw Light crude close above the 200 week moving average and the RSI move above bear market resistance, reaching 61.7. The market’s reaction at the psychological $100 level will likely be a factor in determining short-term price action. No leaded gas was the strongest market in the sector, advancing by 5.85% for the week. Natural gas and heating oil also rose.

Gold broke though near term support and almost reached the June low basis the continuous contract, a level that may be tested this week. The RSI remains in bear market territory, so far unable to break above 50 on any advances. Silver remains slightly stronger than gold and is still above its recent lows.

Currencies

The dollar index fell to its lowest level since late October but had a large indecision day on Wednesday, ending the week back above both the 80 level and the 50-day moving average. Key resistance looks as though it may be tested this week. The 79.06 support level looks as though it will hold for now based on the Euro’s rapid retreat from major resistance. A break above 60 on the RSI for the dollar index would suggest higher levels will be seen near term. The Euro is as ever, almost a perfect mirror image of the dollar index

The dollar rose to new highs for the year against the Yen, and indeed its highest level since 2008, closing above key resistance at the end of the week. The dollar should continue to benefit against the Yen if the Nikkei continues to rise based on the intermarket relationship between the two, where the Yen is inversely correlated to the Nikkei

Interest rate futures

The 30-year T bond was the strongest amongst interest rate futures, managing a small advance for the week. The 5 & 10-year T notes ended lower, as did the 3 month markets. The long-term trend for the sector is still down on balance.

Good trading

Phil Seaton

Weekly Update 15th December 2013 – LS Trader

We’re approaching the time of year where traders look for a Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January, although most seem to consider it for all of December. As of now the major stock indices are down for the month.

Considering the extent of the prior rally and bullish sentiment, which has reached extreme levels, it’s quite possible that there will be no Santa rally this year, something that does not bode well for stocks in 2014 as historically bear markets follow years in which the Santa rally has failed to materialize. More importantly though than this popular seasonal indicator is the proximity to support that stock indices find themselves at, discussed in more detail below.

The focus for many this week though will be the 2 day FOMC meeting, and the seemingly endless debate about whether the FED will begin tapering its Bond purchases from this meeting or further out next year. Stocks will be looking for a delay in tapering, which if that happens may lead to a rally.

Stocks

From last week on the S&P 500 “It is noticeable that the past two weeks’ gains have been extremely minimal so the rally is quite possibly tiring. There are also some momentum divergences; so how much upside the current run has remains to be seen.” As expected the S&P did continue with weakness sufficient to end the trend but has as yet not fallen too far, so a return back to new all time highs can as yet not be ruled out. RSI remains in the bull market support zone, as does the Dax discussed below, so the week ahead may be key to stock market direction, not just from the Fed decision and subsequent market reaction, but also from a technical perspective.

The Dax has fallen to a shelf of support around the 9000 level, which will likely be tested this week. Should there be weakness in other stock markets this level may well be broken with plenty of room for a decline below this support shelf. Last week we wrote that the RSI was still in the bull market support range of 40-50. This week it fell to 40.9. A break below 40 on the RSI will give further weight to a continued decline for the Dax. In summary the price action seen early next week will very likely be critical for this market.

As trend followers we are only interested in price action and not on news events and debates about what the Fed may or may not do, or trying to predict the markets’ subsequent reaction. Price action is king and the rest is commentary.

Commodities

Crude oil appears to have run out of steam as expected with RSI remaining in the 50/60 bear market resistance range, which continues to suggest that $100 will not be seen yet. The trend is still down for crude.

Metals initially spiked higher this week but were unable to continue higher and have since turned lower once more, possibly heading once more to breakdowns to new lows. The lows of the year in both gold and silver are still in range and if they are not reached this year, will likely be in 2014.

Currencies

The dollar index fell below 80 for the first time since late October mid-week but pushed back above 80 come Friday’s close. The trend is clearly down but as we wrote last week, whether we see a move lower to test the year’s low at 7906 will largely be dependent on EUR/USD and specifically whether it can get back to the late October high.

The dollar finally reached and slightly exceeded our target against the Yen, to reach its highest level since 2008. However there is a momentum/price divergence and also a doji printed on the weekly charts, so we may see the market take a pause at this level before resuming the rally further out. A close above last week’s high would be bullish.

Interest rate futures

Interest rate futures continue to drift sideways overall, presumably looking to take their cue from the FED meeting this week. Increased volatility can be expected in this sector during the coming week, but the trend remains down for the longer-term markets in the sector, but still up for the 5 year T note and 3 month Eurodollar and Euribor.

Good trading

Phil Seaton

Weekly Update 9th December 2013 – LS Trader

Stocks made slight new highs this week in the case of the Nasdaq 100, but the other indices lagged behind. The dollar has seen overall weakness with the dollar index falling to new lows for the current move, and commodities have been a mixed bag. There have been a couple of changes of long-term trends this week but overall the trends by sector remain as they have been for quite some time, namely up for stocks and down for everything else.

Stocks

The S&P 500 made a small advance for the week, ending higher by a single point courtesy of a decent recovery on Friday. It is noticeable that the past two weeks’ gains have been extremely minimal so the rally is quite possibly tiring. There are also some momentum divergences; so how much upside the current run has remains to be seen.

Once again it was the Nasdaq 100 that led the way, reaching new highs for the current move and still looking as though it has legs for further gains.

The Nikkei had a heavy 3-day sell-off mid-week but made a very strong move higher on Friday, printing a large bullish engulfing pattern to keep the uptrend intact.  The correlation between the Nikkei and USD/JPY remains extremely high, with the 3-day sell-off and subsequent recovery evident in both markets. If USD/JPY is to reach new highs for the year as we expect, further gains should be seen in the Nikkei.

The Dax was by far the weakest of the 4 indices we trade at LS Trader, printing a bearish engulfing pattern on the weekly chart and bringing the trend to an end, at least for the time being. Support may have been found at last week’s lows, with the RSI also remaining in the 40/50 bull market support range. New highs can as yet not be ruled out.

Commodities

Commodities have for the most part been in a long-term downtrend since 2011, baring a handful of exceptions. There are some signs though that strength is returning to some markets in the sector, and there is clearly plenty of potential upside. Much of the direction for commodities over the coming months will be how the dollar fares and whether markets stay in the current mode of “risk on”, or whether we see stocks begin to decline and a return to favour of “risk off” markets. It is interesting to note that the recent spell of ‘risk on” and dollar weakness has not benefitted commodities as many would expect, so there is underlying weakness for commodity markets

Crude oil made a sharp reversal this week but the trend remains down. The RSI has risen but has remained in the 50/60 bear market resistance range, suggesting that there may not be enough momentum to keep the black stuff heading higher towards $100. That of course remains to be seen as there is strength elsewhere in the sector with Brent crude leading the way higher following a 1.78% gain for the week. Natural gas completed a change of trend to up, so the trend for the sector is currently up overall.

Grains markets have remained mixed but a few of these markets look set to resume their respective downtrends. Rough rice, which has been consolidating in a tight range since late 2011, made a double close key reversal on the weekly charts and may finally break lower this week.

Currencies

The dollar index printed new lows for the current move and may yet head lower to test the year’s low at 7906, but dollar weakness is far from universal, meaning that further dollar index weakness will be reliant on continued strength in EUR/USD.

The dollar has however continued to gain against the Yen and the Canadian dollar, reaching its highest level against the latter since November 2011 basis the back-adjusted futures contract. The dollar also remains on target to reach our long-standing target of 10371 against the Yen, and go on to post new highs for the year.

Interest rate futures

Interest rate futures were lower across the board, in line with the long-term trend. Currently only the shorter-term markets remain in uptrends, with weakness being led by the long bond and the 10-year T note. The weekly charts point to lower prices in the longer-term timeframe, but the daily charts printed some indecision patterns on Friday, so short-term direction will be confirmed by this week’s price action.

Good trading

Phil Seaton

 

Weekly Update 1st December 2013 – LS Trader

Stocks rose to new all time highs this week in what was a shortened trading week due to the U.S. Thanksgiving Holiday. The dollar has been mixed, showing weakness overall but managing to gain against the Yen, Canadian and Australian dollars. The long-term trends remain intact for the 4 sectors that we trade and are still up for stocks, down for the dollar, commodities and bonds.

Stocks

The Nasdaq 100 advanced 1.97% for the week and was the more bullish of the 2 U.S. stock indices we trade at LS Trader. The tech index now stands at its highest level since November 2000. The current rally that began nearly 5 years ago back in March 2009 has already retraced more than 50% of the 2000 bear market collapse and may head higher to retrace 61.8% of that decline at some stage in 2014, that level is at 3723 basis the back adjusted continuous contract, still some 236 points above Friday’s close.

Two of the other indexes we trade, the S&P 500 and the Dax are already at all time highs with the latter making the biggest move, a 2.09% weekly advance. Both indices posted new all time highs but the S&P500’s was marginal, only 0.15% up for the week.

The Nikkei continues to edge higher towards the May 22nd high, this week reaching its highest level since that high. A break above the May 22nd high would be bullish and would be the highest level printed by the index since December 2007. On the basis of intermarket relationships where a strong Nikkei equals a weak Yen, further Nikkei strength would point to continued yen weakness, and vice versa.

Commodities

Crude oil broke below key support this week, confirming a change of trend to down. Crude may continue to head lower to around the 85 handle over the coming weeks. The trend is mixed in the energy sector.

Another market that has completed a trend change this week is oats. Oats is part of a resurgent grains sector that has been heavily sold for much of the past year, but has rallied quite strongly in recent weeks, sufficient to change the trend to up.

From the grains sector the trend is also up for soybeans and soybean meal, both of which have resumed their respective trends this week and look poised to continue higher to test their highs of the year, posted back in September. The third market in the soybean complex is soybean oil. Historically these 3 markets are fairly well correlated but for the past couple of years that relationship has been broken with oil in an established downtrend.

Bean oil looks as though it may break lower once again soon. One thing of note is that the RSI has been unable to clear the 50/60 level since February. In downtrends the RSI usually finds resistance between 50 & 60 and this has been true for bean oil. Each time a correction higher has been seen, the RSI has stalled below the 60 level and the market has moved lower again. On that basis resistance should continue to be found around the 42 handle and the market then press lower again.

Currencies

The 8158 high on the dollar index remains the key level for upside strength and for the time being at least it looks as though that level will hold.  The index remains week, as does the dollar on balance, and the index may be poised to move lower once more, heading back towards the low of the year. The invert of this move will of course be a higher Euro, which may move higher to test the 13834 level soon. The dollar has however gained against the Australian dollar, Japanese Yen and Canadian dollar.

Interest rate futures

Interest rate futures were marginally higher this week but the trend remains down with the exception of the shorter-term interest rate futures.  The past week’s action has been mostly sideways, as has the action since the beginning of October. The 10 Year T-note did rise mid week to test the 200 day moving average but was unable to clear it. Another attempt at that may be seen this week.

Good trading

Phil Seaton