Weekly Update 27th April 2014 – LS Trader

This week ahead sees the 2-day FOMC meeting, beginning on Tuesday. This can often lead to some short-term volatility for a couple of days as Fed watchers try to guess what the Fed is going to do and what the markets’ reaction will be. This is not a winning game to play and one is far better off trading with the trend. This week also sees the end of April and historically the end of the best 6 months of the year for stocks. This gives rise to the old stock adage of “Sell in May and go away”. However, even though that is often correct, it is not always, and it also does not necessarily mean the start of the month. There have been some strong months of May historically.

The long-term trends remain intact and are still mixed for stocks, currencies and commodities, but up for interest rate futures.

Stocks

The S&P 500 continued the rally that began the week prior but ran out of steam on Thursday and pulled back, closing less than a point up for the week. The 1882.5 high posted on Thursday was exactly 10 points below the all time high posted on the 4th April at 1892.5, currently the all time high. Even following 2 days of selling, all time highs are still very close to current market levels so a break to new highs can far from be ruled out. The S&P 500 is however the strongest of the indices we trade at LS Trader.

The Nasdaq 100, in spite of the impressive rally that began back on the 15th April remains some 200 points below its recent highs and is currently in the middle to lower end of the range that has encapsulated trading so far this year. Critical support is not that much below current market levels and a break of said support could yield a decent sell-off. As ever, price action is the only thing that can confirm an idea and market direction, so for now it’s a matter of waiting for a breakout, whichever direction that may be in.

Currently the most likely stock index to break lower is the Nikkei, due to it already being in a long-term downtrend. Critical support could be tested in the coming days.

Commodities

Coffee completed its recovery following the sell-off seen in March. The July contract pushed to new highs for the current move and the highest level for coffee since April 2012 basis the back adjusted continuous contract. Short-term weakness has been seen since the high posted on Wednesday, but the trend is still very much up.

Coffee was not the only commodity market to reach a new high for the current move as orange juice also did the same, reaching its highest level since March 2012 before it also had some latter week weakness.

Silver dropped below key support as expected but then put in a strong one-day bounce before priced eased off once more. The long-term trend is still down for silver as it is also for copper, but remains up for gold and palladium

Currencies

The focus in the currency markets remains as before on 13966 resistance for the Euro basis the June contract, and the key low for the dollar index at 7937. Both of these levels are very much within range of getting tested this week, and as we have mentioned previously the success or failure of the markets breaking out through these key levels may be a key determining factor in numerous markets over the summer months. The currency markets have bee little changed really over the past week or so, presumably waiting for direction from the Euro and dollar index.

Interest rate futures

The long-term trend remains up across the board for interest rate futures. The long bond, still the strongest market in the sector from the 5 that we trade at LS Trader came within 3 points of the recent high, which marks the highest level in the long bond since June last year. The 10-year T note is the next strongest but remains back in the middle of the recent range, as does the 5 year note.

Good trading

Phil Seaton

LS Trader

Weekly Update 20th April 2014 – LS Trader

In last week’s LS Trader update we wrote that critical support tests were on the horizon for the dollar index and Nasdaq 100 and Euro, and suggested that these levels could have a key influence on the direction of several markets over the coming weeks. These levels were tested and each held firm, keeping the prior trends intact. Stocks and the dollar both rallied from their respective support levels. This leaves the long-term trends intact and they stand as previously, mixed for stocks, currencies and commodities, but still up for interest rate futures.

Stocks

From last week on the Nasdaq 100 “3405 looks set to be tested this week and the market’s reaction at that level may determine prices over the coming weeks.” This level held firm and as mentioned above, a strong rally followed, keeping the long-term uptrend intact. The Nasdaq 100 does thigh remain over 200 points below its high of the year, so considerable further rally would be required for new highs to be established. The current waning momentum at this stage suggests that may be unlikely and that a break of support and change of trend to down is more probable over the coming weeks.

The S&P 500 also put in a decent rally, as indeed did the Dax and Nikkei. The S&P 500 remains the strongest of the 4 indices we trade at LS Trader and is the most likely to test the local top, which in the case of the S&P 500 is the all time high, currently at 1892.5 basis the June e-mini contract. The Dax’s rally has returned the market to the middle of the recent range, which has been in place since January, so a reasonable move in either direction will be required for a breakout. The Nikkei, currently the only one of the 4 indices in a long-term down trend may test resistance in the coming days.

Commodities

Crude oil reached its highest level since September last year but has dipped back below resistance following the breakout.  No leaded gas also pierced resistance and reached its highest level since August and this keeps the long-term trend up, as indeed it is for all of the major energy markets at present.
There has been little to write about in recent weeks on gold and silver, but both moved lower this week with gold in particular making a sharp move lower. Silver also dropped to its lowest level in several weeks and remains close to a test of key support. The long-term trends in the metals sector are mixed, and are up for gold and palladium, and down for copper and silver.

Currencies

The 2 key levels in the forex markets that we have been writing about recently, 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937 both remained intact as the dollar strengthened. However, the dollar’s rally has been far from impulsive and has been characterized by small real bodied candles on the daily chart, so conviction is far from present in these markets. Another test of support and possible break to new lows still remains on the cards.

The inverse of the dollar index is the Euro, which pulled back from resistance, but as with the dollar index, still remains within touching distance of a breakout. Should a breakout in either market occur, it will hopefully be confirmed by a breakout in the other market, as that will likely give legs to any subsequent move. A breakout in one unconfirmed by the other would suggest a reversal and a return to the prior range might follow.

Interest rate futures

The long bond, currently the strongest market from the interest rate futures sector rallied initially but then saw some weakness as the week progressed, which culminated in a move lower on Thursday, the last trading day of the week. The long-term trend is still up for the long bond, as it is for all of the interest rate futures markets that we trade at LS Trader, but the 5 & 10 year T Notes both sold off throughout the week, as did the 3-month Eurodollar.

Good trading

Phil Seaton

Weekly Update 13th April 2014 – LS Trader

Both stocks and the dollar declined this week and critical levels look set to be tested in the coming days. Critical support tests are on the horizon for the dollar index and Nasdaq 100, and critical resistance for the Euro may also be tested. These levels collectively could have a key influence on the direction of several markets over the coming weeks, so market price action could really bet set to heat up soon.

For now the long term trends are mixed for stocks, currencies and commodities, but still up for interest rate futures.

Stocks

The S&P 500 fell to its lowest close in 8 weeks and this led to a drop below key support at 1823.5 and the key 40 level on the RSI, meaning that for the short-term the trend has turned to down. The long-term trend remains up but for the first time in a long time a change of trend to down is potentially entering the picture. Considerable weakness will be required before that happens but it’s the first time that we have been able to talk about this in months.

Last week we wrote that the Nasdaq 100 had been making a series of lower lows and lower highs, which is technically a bear market set-up, and this continued this week. We also wrote that a move lower to 3405 looked increasingly likely based on the market’s structure and the declining RSI, which had entered bearish territory. 3405 looks set to be tested this week and the market’s reaction at that level may determine prices over the coming weeks. A fall and close below 3405 may see the index shed a further 100 points in fairly short order.

The Nikkei continues to be the weakest of the 4 indices we trade at LS Trader, and this week the Japanese index broke key support and fell to its lowest level since last September. Decisive follow through has yet to occur but that may follow.

Commodities

Last week we wrote that Palladium “should be good for further strength through the 802.45 March 24 high”. Weakness was seen on Monday but another 4 day rally followed and a break above the March high was seen on Friday. Further rally towards 870, the August 2011 high may now follow.

We finally exited lean hogs, which was the biggest winning trade so far this year for the LS Trader system, making a total of 1987 spread betting points profit from the trade since we entered back on the 21st of February. This trade slightly exceeded profits banked earlier this year from oats and coffee, 2 other big winning trades so far this year.

Soybeans and soybean meal once again reached their highest levels since our data began for these markets, going back since 1968 basis the back-adjusted continuous contract. However, both pulled back during the last 2 days of the week but the trend is still up.

Currencies

In recent weeks we have been writing about the 2 key levels in the forex markets, 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937. The dollar index basis June came within a couple of pips of that critical support level before moving slightly higher. This level will likely be tested again in the coming days, as may possibly the 13966 high in the Euro.

Interest rate futures

Interest rate futures rallied across the board, led higher by the long bond, which broke through key resistance as expected. This took the long bond to its highest level since June last year, took the RSI above 60 into bull market territory in the process and moves the target higher to the next level of technical resistance around 13650.

Good trading

Phil Seaton

Weekly Update 6th April 2014 – LS Trader

It’s been a mixed week with the S&P 500 reaching new all time highs before reversing lower on Friday. The dollar has continued to gain against most of the majors, although on balance the long-term trend is still against the dollar. Interest rate futures had been heading lower but rallied Friday, keeping the uptrend intact, whilst commodities have been mixed.

Stocks

The S&P 500 printed new all time highs on 3 consecutive days this week basis the e-mini back-adjusted continuous contract, but fell just short of round-number resistance at 1900. Friday’s daily chart printed a bearish engulfing pattern, so some further weakness to lead to a test of support at 1823.5 may follow. The RSI still remains in the bull market range, with a move below 40 on the RSI required to change that.

The Nasdaq 100 continues to be weaker than the S&P 500 and has continued lower since breaking support earlier in the month, making a series of lower lows and lower highs, which is technically a bear market set-up. As we wrote last week a move lower to 3405 looks increasingly likely based on the market’s structure and the declining RSI, which is now in bearish territory.

The Dax remains on target to test 9759 the 24th February high and if successful possibly the all time highs posted in January.

From a historical perspective, April is the last of the seasonal strong months and is the best performing month for the Dow, the second best month for the S&P 500 and the third best for the Nasdaq, so it may be premature to call a top in place yet for stocks. April does however lead into the weakest months of the year beginning with May, and the old stock market adage of “Sell in May and go away”. For now the trend is up for 3 of the 4 stock indices we trade at LS Trader, the exception being the Dax. That however would change on a break to new all time highs, which could be on the horizon.

Commodities

Commodities have been mixed for much of the past week, with only a few markets making decent moves. Most commodities markets have been consolidating for the past several sessions.

Palladium, which is currently the strongest metal, rallied for all 5 days and continued the recovery that began with a bullish piercing line pattern printed the previous Friday, and should be good for further strength through the 802.45 March 24 high.

Energies all still remain in long-term uptrends, but much of the trade seen during the past several weeks has been choppy, sideways action that is consistent with a correction. This holds true for all the markets in the sector except for natural gas, which had an extremely bullish run earlier this year, one that is currently being corrected.

From the grains sector, rough rice has rallied to within touching distance of key resistance, which looks likely to be tested in the next week or so. Soybeans and soybean meal both rallied to new highs for the current move, with both markets briefly reaching its highest level since our data began for these markets, going back since 1968 basis the back-adjusted continuous contract. Both markets have been higher on the basis of cash prices.

Currencies

The 2 key levels that we have been writing about in recent weeks in the forex markets remain intact; 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937 for the same contract month. As long as these 2 levels hold we could be seeing the early stages of some dollar strength, which at present would be counter to the long-term trend. The dollar index has retraced just over 50% of the decline from 24th November and may be headed higher to test the January highs. As ever, price action is the only thing that can confirm an idea, but the technical picture is looking increasingly bullish for the dollar.

Interest rate futures

Interest rate futures declined to new lows for the current move (exception being the strongest of the US markets, the long bond) before rallying on Friday. Short-term interest rate futures rallied after some mid-week weakness, with the Euribor looking set to test recent highs, and the 3-month Eurodollar rallying from a key shelf of support. 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