Weekly Update 30th March 2014 – LS Trader

Overall it’s been a relatively quiet week for most markets. Stocks have once again failed to reach new all time highs, continuing to trade in quite a narrow range, especially in the case of the S&P 500. The dollar index was little changed, but overall the dollar fared slightly better against the major currencies.

The long-term trends remain as before, and are up for stocks, up for interest rate futures and mixed for the dollar and commodities.

Stocks

The S&P 500 has been unable to post new all time highs for the third consecutive week, so the all time high at 1880.25 basis the June e-mini contract continues to hold. However, support has also remained intact, so the long-term uptrend and current long trade remain in place. There is support at 1823.5 and the RSI also remains in the bull market range, with a move below 40 on the RSI required to change that. The trading range for the S&P 500 however is quite narrow, so a break from the range in either direction is due.

The Nasdaq 100 has been considerably weaker and has continued lower since breaking support earlier in the month. Structurally, a move lower to 3405 support may follow. Here, the RSI has moved below 40, reaching a low of 37.85 on Thursday, suggesting further weakness may follow.

The Dax and the Nikkei have both continued to outperform the U.S. indices over the past couple of weeks, with the Dax showing considerable strength following the break of key support and the subsequent sharp reversal. The Dax has in fact retraced move than 78.6% of the decline from 9759 from the 24th February, suggesting that this level, and possibly the all time highs posted in January will be tested once more.

Commodities

Last week we wrote on Lean Hogs and said “although we may see a drop short-term, longer-term could still see considerably more rally over the coming weeks and months.” We did see a drop for lean highs during the middle of the week, but the market then rallied to new highs basis the April contract, which goes off the board on Monday as we roll forward to June. This remains the most profitable trade to date this year for the LS Trader system, with currently 2659 spread betting points profit on the open position.

Gold has continued to decline since posting the $1392.2 high on the 17th March, and silver has also continued to drop. Gold’s rally as mentioned in previous updates was not confirmed by silver, which itself never rallied sufficiently to change the trend to up, Silver therefore remains in a long-term downtrend and may be headed lower to test the January and possibly 31st December lows.

Currencies

The dollar index ended the week slightly higher as the Euro fell for the second straight week. There are 2 key levels in the currency markets to focus on, the 13966 high for the Euro basis the June contract, and the key low for the dollar index at 7937 for the same contract month. In order to see a sustained period of dollar weakness, both these levels must be broken, with a break of one confirming a break of the other. If both of these levels continue to hold over the coming weeks, it could be that we have seen a bottom for the dollar for the time being, at which point we could see further rally for the index, and potentially a steep decline for the Euro.

The British pound had a good week, printing a bullish engulfing pattern on the weekly chart, which keeps the chances of new highs for the current move intact. The long-term trend remains up for cable.

Interest rate futures

The 3 month Eurodollar did test support as we suggested may happen in last week’s update, and support was found, keeping the long-term uptrend intact. The long bond also broke through resistance as expected but has so far been unable to push higher, but instead dropped back below prior resistance. The long-term trend remains up for all 5 interest rate futures markets that we trade at LS Trader.

Good trading

Phil Seaton

LS Trader

Weekly Update 23rd March 2014 – LS Trader

The past week has seen stocks end the week slightly higher, but fail to reach new highs, and has also seen the dollar index move higher. Several commodity markets made decent moves and interest rate futures were, in most cases, sharply lower. The long-term trends remain unaffected so far, and are still up for stocks, mixed for commodities and currencies, but still up for interest rate futures.

Stocks

All 4 stock indices that we trade at LS Trader ended the week higher, but none of them were able to exceed their local tops. Friday was triple witching, which saw stocks roll out of March and into June. The day saw the S&P 500 rally initially but then sell-off into the close to end down for the day. The rally did come within a few points of the market’s all time high, but failed to do so. However, it would be premature to say that we won’t see new all time highs soon due to the trend still being very much up and the proximity of the market to its highs.

The Dow, noticeably still the only one of the 3 main U.S. indices unable to clear its high from last year, printed a shooting star pattern on Friday, having once more come close to testing the high. Repeated failure here may lead to a steep sell-off, but conversely, should the market be able to break through resistance prior to selling off, a decent rally would likely be seen.

The Nikkei, currently the weakest of those we trade at LS Trader remains perilously poised above a key shelf of support, which if broken may lead to a sharp sell-off in a move that would also impact USD/JPY, due to the correlation between the index and the currency pair.

Following the break of key support during the prior week, the Dax made a snap and crack rally, regaining support and rallying higher in the process. This rally has so far retraced just over 50% of the decline from 9759, and may continue higher to the 9444 area, before moving lower once more. Following the prior week’s break of key support, the trend is now down.

Commodities

In last week’s update we wrote about Lean Hogs, which is currently our biggest winning trade from our open positions. We wrote that the RSI had reached 89.38 “It is rare for the RSI to push much beyond 90, but it can and does happen.” Price action this week proved that as hogs rose another 637.5 points, and the RSI reached 90.32 at daily chart level. This market has now rallied just shy of 2000 points since the beginning of March and by all measures is due some form of correction. However, with the trend being as strong as it has been, it will take a large correction to put a dent in the trend. Therefore, although we may see a drop short-term, longer-term could still see considerably more rally over the coming weeks and months.

Currencies

The dollar index held key support and the bullish divergence between the recent low and the low for the index posted in October remains intact. This, as we have mentioned previously, did not confirm the rally for the Euro (the dollar index and Euro are inversely correlated). We noted that this was potentially bullish for the dollar, and this week it was; however, not sufficient to change the trend in either the dollar index or the Euro. The dollar was an overall gainer against the major currencies this week, reflected by the rise in the dollar index.

Interest rate futures

Interest rate futures were lower across the board. The long-term trend for interest rate futures remains up but that could change soon if weakness continues. The shorter-term interest rate futures, such as 3 month Eurodollar and 5 year T notes both look as though they may test critical trend-defining support in the coming days. The long-term trend in both of these markets has been up for 5 months, so a change to down would represent quite a shift in recent market action.

The best performing market in the sector is still the long bond, which in spite of weakness this past week could still test critical resistance during the next week or so. So, for now the trend remains up for the sector until we get confirming price action to the contrary.

Good trading

Phil Seaton

Weekly Update 16th March 2014 – LS Trader

Stocks were unable to push to new all time highs this week and ended the week lower. The US dollar index dropped to its lowest level since October last year and commodities have been mixed. Interest rate futures were all higher.

Stocks

For the first time in a few weeks, stocks failed to reach new all time highs. The failure to do so led to a reasonable sell-off. Whether this is the start of a new wave of selling remains to be seen. So far the long-term trend according to our proprietary indicators remains up for 3 of the 4 indices we trade. The Dow, which is one that we don’t trade at LS Trader but is still one that we monitor from an intermarket analysis perspective, closed lower for 5 consecutive days; something that it has not done for almost 2 years. It is also worth noting that, as we have covered in recent newsletter issues, the Dow has lagged the S&P 500 and the Nasdaq 100 and has not broken to new all time highs (or multi-year highs in the case of the Nasdaq 100). This is not a bullish set-up.

The Dax broke through key support, changing the trend to down and being the first of the 4 stock indices that we trade at LS Trader to do so. The Nikkei looks likely to be next, but the 2 US markets are comparatively a long way from testing key support. Considerable weakness over the next few weeks will be required for that to change. The Nikkei has a strong shelf of support at not far below current prices, which if broken, could lead to a substantial sell-off. The RSI has already broken through bull market support and suggests prices may complete the break of support. As ever, only price action can confirm this and until such a move occurs, the trend remains up.

Commodities

Last week we touched on the divergence between gold and silver; two markets that are normally highly correlated. This week saw gold breakout to the upside as expected, but silver still lags behind. Gold and palladium are both in long-term uptrends, but the trend for silver remains down. Copper broke through key support this week to confirm a change of trend to down and subsequently broke sharply lower to its lowest level since July 2009. Should last week’s low be taken out there is a long, long way down before the next level of support is found. Copper, as long time readers will know is known as Dr Copper for its economic indicator status. Copper’s break lower shows that all is not anywhere near as well in the economy as many would have us believe.

Lean hogs continue to be the main big winner for the LS Trader portfolio at present, having this week added another 630 points to the rally that began a month ago. Upside momentum here is very high, with the RSI reaching 89.38 on Tuesday this week. This has since dropped back to 86.33 and suggests that we may at a minimum have a bit of corrective price action before the rally extends further. It is rare for the RSI to push much beyond 90, but it can and does happen.

Currencies

During the past couple of weeks we have written about the fact that the breakout to new highs in the Euro has been unconfirmed by new comparative lows for the dollar index. These 2 markets are highly inversely correlated due to the Euro making up 57% of the dollar index. This week saw the Euro rise to new highs again, but the index once again fails to reach new lows. That said, the index fell to within 4 points of its 2013 low basis the continuous contract, so that is clearly a level that can still be broken.

Interest rate futures

The long-term trend for interest rate futures remains up and with all markets in the sector moving higher this week, key resistance levels could be tested. Interest rate futures, in spite of conventional wisdom that says bond prices should fall due to Federal Reserve tapering, remain in long-term uptrends and all the markets in the sector rose this week. The long bond came within a few ticks of testing recent resistance and it could be only a matter of time before interest rate futures break higher, particularly if stocks continue with weakness that began last week.

Good trading

Phil Seaton

LS Trader

Weekly Update 9th March 2014 – LS Trader

The past week has been a very active week in the markets, and for the LS Trader system. It’s been a week that has seen multiple breakouts from ranges in several markets and sectors. The upshot of this is that the LS Trader system entered 11 trades, which is the most entered in a single week for a long time. Historically the system averages around 4-5 new trades per week, so last week’s new trades were above the norm and are indicative of changing market conditions. Many markets have been in trading ranges for a few years and it’s possible that we are in the early stages of new trending conditions.

Stocks

The S&P 500 pushed to new highs once more, as did the Nasdaq 100. In the case of the S&P 500, Friday’s high of 1887.50 basis the March e-mini contract is a new all time high. The Nasdaq’s Friday high was its highest since October 2000.

The Dow 30 rallied 200 of the 250-odd points that were required for a breakout to new all time highs but was ultimately unable to breakout. As we wrote last week, should the Dow gain sufficient strength and breakout, we could have the makings of a sustainable global stock market rally. For now, the December 31st 2013 remains the all time high for the Dow.

Even the Nikkei, by far the weakest of the 4 stock indexes we trade at LS Trader advanced for the week, leaving the Dax as the only 1 of the 4 to end the week lower.

Commodities

The commodity markets have seen an increase in volatility this past week. The energy markets have been particularly volatile as both Brent and Light crude had false breakouts. However, the trend is clearly up for the energy sector and all markets are in alignment for the first time in a while, so new breakouts and further rally could yet be seen over the coming weeks.

Coffee, one of our current big winning trades made another large move this week, crossing the 200 level for the first time since 2012. Lean hogs also continued its sharp rally to reach its highest level since 2008. Oats, which is our third big winner from the commodities sector pulled back this week having earlier crossed the 500 level for the first time since July 2008 basis the continuous contract.

We’ve not written much about metals in recent weeks, as there has been little happening. This week has seen decent moves in both palladium and copper. Unusually these breakouts have occurred in different directions. Palladium broke to the upside to reach its highest level in almost a year and giving a change of trend to up in the process, whereas copper broke sharply lower, falling to its lowest level since July. With gold and silver still being in long-term downtrends, only palladium is in an uptrend. However, gold is consolidating just below a key resistance area so a key breakout could be on the horizon. Gold and silver are normally highly correlated, but there is currently some divergence between the two, as silver is quite some way below key resistance and a change of trend.

Currencies

Last week we wrote that the long-term trend is and has been down for the dollar index since July last year, and that the RSI remained very much in bear market territory. Friday saw the index briefly fall to its lowest level this year, and then promptly reverse. The trend however is still very much down. Possibly the only thing that is bullish for the index is that it did not break to major new lows so it has not confirmed the Euro’s rally to new long-term highs. This means that next week for both the Euro and the index could be critical as the best moves occur when both markets move together, albeit that the moves are inverted.

The Euro was not the only major currency that moved to new multi-year highs against the dollar, as the Swiss franc made the same move. Basis the continuous contract, the Swiss franc has reached its highest level against the dollar since November 2011, coinciding almost to the week for the same move in Euro/dollar.

The pound also hovers just below multi-year highs so we are at potentially a critical area for the major currencies as a reversal here would return these currencies to their trading ranges, whereas a break of the recent highs in each market could lead to an extended move in the direction of the breakout.

Interest rate futures

The long bond cleared critical resistance but was unable to push higher following the breakout, and instead reversed and moved back into the range. The entire sector, including the short-term interest rate futures (STIRs) all dropped sharply on Friday. The long-term trend however is still intact and remains up for now.

Good trading

Phil Seaton

Weekly Update 2 March 2014 – LS Trader

This past week has seen stocks rise to new all time highs (in the case of the S&P 500), and the US dollar weaken across the board. Interest rate futures have pushed higher but as yet have been unable to clear critical resistance. Commodities have been mixed but have seen some explosive moves in both directions.

Stocks

The S&P 500 broke through key resistance to register new all time highs. Although the rally over the past 4 weeks from the 1732 low basis the March e-mini contract has been strong, momentum is waning. There is bearish RSI divergence on the daily and weekly charts, which does not as yet confirm the advance to new highs. Similarly, Friday’s candle was a spinning top, which is an indecision pattern. Therefore things are not as yet quite as bullish as they may appear with an index at all time highs. 1846.50, which for so long acted as resistance, should now act as support, but due to its proximity to current market levels it remains to be seen as to how well, if at all, that holds up.

Whilst the Nasdaq 100 has also pushed to new multi-year highs, the move is unconfirmed by the Dow 30. Although this is not a market we trade at LS Trader, it is one that we watch for price confirmation, or as in the current market environment, non-confirmation. This does not mean that U.S. markets cannot move higher, merely that at present the Dow is lagging. Should the Dow gain sufficient strength to rise another 250-odd points and also breakout, we could have the makings of a sustainable global stock market rally.

Both the Dax and the Nikkei in particular continue to lag behind their U.S. counterparts, so the rise to new all time highs (S&P 500) and new multi-year highs (Nasdaq 100) is far from a global affair.

Commodities

Last week we wrote about natural gas and said that the recent large daily swings showed no sign of abating. How right that was but the extent of those moves was even larger than could have been expected! Much of this volatility was likely due to the expiration of the March contract and the premium that it was trading to over April. This led to a steep sell-off in March and a much smaller decline by comparison in April. April is now the prompt month and with the trend still up despite last week’s bashing, a bounce may occur.

Natural gas was not the only big mover; oats, coffee and lean hogs all made decent moves as well. Oats and coffee have so far been massive winners for the LS Trader system, so far racking up many multiples of initial risk, and both trends are still very much under way. Lean hogs is a trade that has been open for only a short while, but has also racked up considerable profits, helped largely by the 750 point advance seen last week. This rally has so far seen hogs rise to its highest level since September 2008 basis the continuous contract.

Currencies

The dollar index ended the week lower and the dollar was in fact lower across the board. Having fallen through short-term support, the index looks set to test the next level of support this week. With the RSI already in bear market territory having moved below the 40 level this week, momentum points to lower prices for the dollar. It is important to note that the dollar index came quite close to breaking out and giving a confirmed change of trend to up a few weeks ago, but was unable to do so. Therefore the long-term trend is and has been since July last year, down.

Interest rate futures

Interest rate futures rolled out of March into June last week. The week or so ahead promises to be key for this sector as critical resistance is likely to be tested in the long bond. Basis the daily continuation chart, June rose to around 20 points below key resistance. With the RSI already bullish at 64, if the long bond can clear resistance we would likely see the move confirmed by a new high on RSI as well. This would then put the market into clear open sky with little overhanging resistance to hinder further advance. Such a move in the long bond would likely lead to a similar move in the 10 year note, which is currently the laggard in the sector and the only one of five interest rate futures that we trade at LS Trader that is still in a long-term downtrend according to our proprietary analysis.

Good trading

Phil Seaton