Weekly Update 26th January 2014 – LS Trader

Stocks sold off sharply during the last two trading days of the past week, possibly spooked ahead of this week’s 2 day FOMC meeting and the possible further withdrawal of stimulus measures. Whatever the reason, stocks broke sharply lower and took out short-term support in the process. Whilst the long-term trend is still very much up, the extent of the 2-day sell-off will raise questions as to whether the all time high posted at the end of last year will hold for the foreseeable future.

Stocks

The S&P 500 failed to clear the all time high posted on 31st December 2013. Having bumped its head against resistance from all time highs numerous times since the start of the year, with the final failure being made on Thursday, forming a double top, with the intervening low being broken on Friday. The Dow 30 lost a massive 579.45 points this week, for a 3.5% weekly decline. The Nasdaq 100 made a double close key reversal at weekly chart level, which is also bearish. Short-term indicators therefore all point to further weakness in the near term.

Historical stock market buffs will be well aware of the January stock market barometer, which states that as goes January, so goes the rest of the year. As we enter the last week of January with stocks considerably off their open for the year, the odds favour a lower close for January. This barometer has an 88.9% accuracy ratio so there could be a bear market ahead, something that is very contrary to the vast amount of popular opinion.

Commodities

Commodities have been mixed with several markets continuing to slide. Sugar fell to new 3 ½ year lows and wheat came within a quarter of a cent of new lows. The biggest move of the week came from natural gas, which shot higher by a huge 19.37%. This move took out a couple of key resistance levels to reach its highest level since late 2011. The 200 week moving average, which is a very long-term indicator is not far above last week’s high and that represents a likely target for this week. Natural gas has been below this level since 2008 where it made a brief move above that average that lasted only a week. To see some continuous trade above that average one has to go back to 2005, such is the extent of the long-term decline.

Currencies

In a normal market stock indexes and the dollar are inversely correlated, so a decline in stocks is generally met with a rise in the dollar. This has not been seen this week. The long-term trend basis the dollar index is still down and remains below the key 8200 level. Weakness in the dollar suggests that the markets believe that stimulus and low rates may be with us for longer than was previously expected. The index now sits almost exactly in the middle of the recent range.

The dollar did not decline across the board though, and did advance against the riskier commodity based currencies, but fell against the safe haven Swiss franc and Japanese yen. This is very much in line with a move towards risk-off

Interest rate futures

The long-term trend is still down for the 10-year T note and the 30 year T bond but that could change if stocks continue with their sell-off from last week, which would lead to further rises in the long bond. A change of trend to up is within range should strength continue. The rise for the 30-year bond from the start of the year is a move towards risk off, and it is of interest that it occurred ahead of this past week’s stock sell-off. The shorter-term interest rate markets all still remain in a long-term uptrend and may be joined by the 10-year note and long bond soon.

Good trading

Phil Seaton

Weekly Update 19 January 2014 – LS Trader

The past week saw stocks break lower early in the week but then saw a subsequent recovery. The Nasdaq 100 rose to a new high for the current move but the S&P 500 narrowly failed to make a new all time high. Both indices ended the week higher. The dollar also ended the week higher with gains across the board. The long-term trends in each of the sectors remain unchanged.

The week ahead is a shortened trading week due to the U.S. holiday for Martin Luther Kind Jr. Day on Monday, which sees U.S. markets closed to observe the holiday.

Stocks

The S&P 500 fell just shy of making new all time highs but still remains close to its highs and may yet breakout. As has been the case for much of the advance from the October lows, once a breakout to new highs occurs, there is no overhead resistance so there is always the possibility of the rally continuing further. Currently a breakout to new highs may open the door to further strength towards 1900.

The Nasdaq 100 dropped below 3500 for the first time since before Christmas, but then put in a powerful reversal that began with a large bullish engulfing pattern. The strength of this move had sufficient momentum behind it to take the market to new multi-year highs, before a small pullback into Friday’s close. What happens next will likely be dependent on whether the S&P 500 breaks out to new highs or fails at current levels.

The Dax has been the strongest of the 4 indices we trade at LS Trader recently, with the trend remaining intact from our entry last year. This week saw the Dax post new all time highs at 9799 basis the March contract.

The Nikkei did not fall as far as 15,000 but having fallen to 15,390 on Tuesday put in a strong reversal day and regained the 50 day moving average in the process. With correlation still running high between the Nikkei and USD/JPY, both markets may yet break to new highs.

Commodities

Cotton made a large bullish move, advancing 5.10% for the week and moving higher towards a change of trend to up. The trend has been down for cotton since October last year. This week’s move saw this soft commodity move above the 200 day moving average as well and may be poised for further advances.

Many commodities still remain in long-term downtrends, none more so than sugar and wheat. Sugar has continued to collapse since failing to move above 20 back in October last year. This week saw sugar decline for a 12th week in the last 13, and end the week lower by 2.25% to fall to 3 ½ year lows. There is plenty of room for lower prices ahead, with support a long way below current levels. Wheat has dropped for 7 straight weeks and is also at multi-year lows.

Currencies

The dollar has advanced against all the currency markets we trade at LS Trader, and was extremely active against the Aussie, where a failed upside breakout was followed by a break to new lows and a change of trend to down. The dollar is strongest still against the Canadian dollar and reached our 110 target this week before closing slightly lower.

The Euro fell through some additional short-term support levels and is now firmly below the 50 day moving average. Further weakness will be required for a change of trend to down, but such a move is now coming into range, as is the 200-day moving average, which is a realistic target at 13345.

The dollar index, which is an almost perfect inverse of the Euro, reached its highest level in 9 weeks. Further strength will be required for a change of trend to up but such a move does look as though it may be on the horizon. Both the 200 and 50 week moving averages are currently just above the 8200 level, which is a good target and possibly a resistance area.

Interest rate futures

It’s been a relatively quite week for interest rate futures, which have mostly gone sideways for the week. The long-term trend is still up for the 5 year notes and short-term interest futures, but remains down for the long bond and the 10-year T note.

Good trading

Phil Seaton

Weekly Update 13th January 2014 – LS Trader

The first full trading week of 2014 is over and it’s been a week that has seen stocks recover some of the losses from the prior week and the dollar move lower. Interest rate futures were sharply higher and commodities have seen mixed price action. The long-term trends for each of the sectors remain intact with the position at the start of the year being up for stocks, down to mixed for commodities and bonds, and mixed to down for the dollar. Going on the basis of the dollar index, which is a basket of currencies against the dollar but is heavily weighted towards the Euro, the trend for the dollar is in fact down.

Stocks

The S&P 500 began the week with some weakness, but not sufficient weakness to break support, so the long-term uptrend remains in effect. The remaining 4 trading days of the week saw a steady climb back towards the all time high posted on the 31st December 2013 at 1846.5 basis the March S&P 500 e-mini contract. New all time highs look likely based more on the proximity of the market to the highs rather than the price action, which shows a series of small real bodies on the daily charts and not strong candles.

The Nikkei has been the weakest of the 4 stick indices we trade at LS Trader and may yet head lower towards the low 15,000 level. However, the long-term trend remains intact and it should only be a matter of weeks before we see the recent highs exceeded.

Commodities

Commodity markets have seen an increase in volatility this week and some larger moves have been seen compared to recent weeks. For quite a long period of time, many commodities have been in consolidating patterns, especially when viewed on a weekly chart spanning around the last 5 years. Many of these patterns are wedge types and contracting triangle shapes that have had an ever-decreasing range. This has led to a drop in volatility and mostly trendless, directionless trading that keeps traversing from the upper to the lower boundary of the range.

This is one of the key reasons as to why trends have been lacking over the past couple of years in many commodity markets. Formations such as these do come to an end and are likely to do so this year, with the resultant breakouts likely to lead to some substantial moves in the direction of the breakout that could lead to moves that have the potential to run for a few years. When these breakouts do come, they will bring plenty of excellent opportunities for taking large profits out of the commodity markets.

Currencies

With the exception of against the Canadian dollar, the U.S. dollar has been lower this week against all the majors. The dollar did rise sharply against the Canadian dollar, reaching its highest level on the basis of continuous futures contracts since Q3 2010. It has often been the case in the past that the Canadian dollar has made a key move ahead of other currencies, so if that turns out to be the case again this time we could be due a period of U.S. dollar strength. Such a move is not confirmed by other currencies, in particular the other commodity based currencies of New Zealand and Australia, both of which could break out of their respective ranges to the upside in the coming days.

The dollar index ended lower, closing right on the 50 day moving average, but still remains below the 200 day moving average. The trend is still down.

Interest rate futures

Interest rate futures had a bullish week with Friday being particularly strong as the non-farm payroll figure came in lower than analysts expected. These markets shot higher on Friday and the moves resulting in some bullish reversal patterns being printed on both the daily and weekly charts. The long-term trend remains down for the long bond and the 10-year T note, but is still up for the 5 year notes and short-term interest futures.

Good trading

Phil Seaton

Weekly Update 5th January 2014 – LS Trader

The Santa Claus rally came off the rails in the first 2 trading days of the New Year, which left only the Dow 30 making a reasonable gain for the period from the U.S. stock markets. The S&P 500 managed a very small 0.2% advance, and the Nasdaq 100 was lower for the period.

Having had an inconclusive Santa Claus rally, seasonality followers’ focus will now shift to what is known as the January Barometer, which states that as go the first 5 trading days of the year, so goes the rest of the year. With the first 2 days being sharply lower, the markets have through to Wednesday to correct that loss and register a gain for the period. This indicator does have a reasonable pedigree for seasonal indicators, with an accuracy of 88.9% since 1950. More importantly than the seasonal tendencies is the long-term trend, which is clearly up in all 4 indices that we trade at LS Trader.

Stocks

The S&P 500 rose to new all time highs on the last day of 2013 but sold off in the first 2 trading days of the year. Should this weakness continue next week, further selling may follow to take the market back towards medium-term support at 1754.

The Nikkei also rose to new highs for the current move this past week, but also saw weakness during the first 2 trading days of the New Year. The Nikkei though did put in quite a decent bullish reversal on Friday having been significantly lower earlier in the day. If this rally is good, last week’s low should hold.

Next week, which is the first full trading week of the year, should give a clearer picture of market direction as traders come back to their desks and trading volumes pick up. Volumes have been light during the holiday period, which has contributed to the volatility.

Commodities

Crude oil sold off sharply having been unable to press clearly above the $100 level. The long-term trend remains down for this market and me may see further weakness during the coming weeks, in the direction of the long-term trend. Other energy markets were also weak and may follow crude lower. Brent crude, which has been stronger than light crude for the past several months also broke lower and may head lower towards the 200 day moving average, currently at 104.46.

Silver and gold both had highly volatile weeks following weakness on the 31st December, which was sharply reversed by the close of trade that day. Both markets are now in the 50-60 range on the RSI, which often provides resistance for bear markets. Short-term momentum however points to higher prices near-term although the long-term trend for both is likely to remain down for quite some time yet

Currencies

The currency markets have seen quite a considerable increase in volatility during the past couple of weeks. This year has begun with dollar strength in most markets. The long-term trend for the currency markets remains mixed, with the trend being up for some and down for others. This was the picture for much of 2013 and was a major contributing factor for choppy markets in the commodity markets as well as the currency markets. The best moves and biggest trends come when there is a clearly defined trend for the dollar, with the dollar either in an up or down trend against all of the majors at the same time. This position will likely clarify in 2014 and will result in some extended trends in both currencies and commodities as many markets in both sectors look set to break out from long-term consolidation patters, some of which go back several years.

Interest rate futures

The 30-year T bond broke to new lows for the current move and may yet test the low of 2013, printed on the 6th September basis the continuous back-adjusted chart. The trend remains down for the longer-term markets in this sector, but is still up for the shorter-term markets.

As we wrote last week, the interest rate futures markets will be one of the sectors to watch in 2014, as there is potential for some huge moves, particularly to the downside.

Good trading

Phil Seaton