Weekly Update 25th May 2014 – LS Trader

The week ahead will be a shortened trading week due to the Bank Holiday in the UK and the Memorial Day Holiday in the US on Monday.

The past week has seen stocks post slight new all time highs and has also seen the dollar continue its recent recovery, with the dollar index rising to its highest level since the 7th April. Historically these markets are inversely correlated, so both are unlikely to keep rising together for long, meaning that either stocks or the dollar will likely weaken in the not too distant future.

The long-term trends remain up for stocks and interest rate futures, and mixed for commodities and the dollar, although there is a short-term upward bias in the dollar.

Stocks

The S&P 500 posted very slight new all time highs this past week, registering at 1899.25 basis the June e-mini contract on Friday, less than 1 point below the psychological 1900 level. The trend remains up and the odds favor a break above 1900 this week, although it must be noted that there is minor bearish divergence between price and the RSI, which shows that momentum is waning a little.

The Nasdaq 100 has continued to recover since posting a double bottom, and with the RSI breaking back above 60, a test of the local top looks to be on the cards. Last week was a strong bullish week, so we can look for a test of the multi-year high posted back in March.

The Dax looks good for another test of all time highs, with 9823.5 basis the back-adjusted continuous contract, printed 21st January as the current all time high. There is a possibility of a double top with the May 15th high just 1 point below that level, but this is far from confirmed. A breakout above these 2 highs would be bullish, especially if on a closing basis. Considerable weakness would be required for the double top to be confirmed, as the intervening low would need to be taken out. That low stands at 8934.5.

The Nikkei, still the only index of the 4 that we trade at LS Trader in a long-term downtrend, had a strong bullish turnaround this week from just above key support. As we mentioned last week, this correlates with a move higher in USD/JPY, which also bounced higher from support.

As before, volatility remains extremely low, and the front month contract on the VIX has fallen to new lows again. This represents extreme complacency in the stock market.

Commodities

Strength has returned to the energy sector this week as crude oil broke higher to reach its highest level since September last year. Further rally, possibly to as high as $109 may be seen. Both Brent crude and no leaded gas look poised to breakout soon as well but heating oil and particularly natural gas continue to lag.

Palladium rose to new highs for the current move and is now at its highest level since August 2011. Further advance towards 870 remains on the cards. Soybean meal also rose to new highs this week, with the high printed Thursday at 508 being a new all time high basis the back adjusted continuous contract that we use at LS Trader.

Currencies

It’s been another week of gains for the dollar, which continues to rise against the majors. The dollar index has rallied to its highest level since April 7th, and although the long-term trend is still down further strength near term looks likely. The RSI has risen to 64.38, which is bullish and points to further dollar strength. Continued dollar strength would further pressure the Euro, which has continued to fall since printing its $1.3993 top earlier this month. Further declines to trend defining, critical support remain a possibility.

USD/JPY bounced higher from just above critical support as did the Nikkei. These 2 highly correlated markets move together, but it is noticeable that the dollar’s rally against the Yen has been less forceful.

Interest rate futures

The shorter-term interest rate futures led the markets for a change this week. The December 15 3-Month Eurodollar contract rose to a new high on Tuesday before pulling back to Friday’s close. The Euribor also matched its recent high. The entire sector remains in a long-term uptrend and new high prices are still expected.

Good trading

Phil Seaton

LS Trader

Weekly Update 18th May 2014 – LS Trader

Although market volatility on the whole remains at historically low levels, a few key things are starting to emerge that could have a big impact on the markets as a whole. Of particular interest is the rally in the interest rate futures sector, particularly the 30-year bond and the 10-year T note. The interest rate futures sector is the largest by far of all the market sectors and subsequently attracts the biggest and smartest traders. This rally suggests that something is going on that the larger public is unaware of and it does not correlate with stocks that are at or near all time highs. This is a key relationship to follow as stocks point to risk on, but the interest rate sector says otherwise.

For now long-term trends as per LS Trader‘s proprietary analysis remain as they have for quite a while, up for stocks, up for interest rate futures and mixed for the dollar and commodities.

Stocks

The S&P 500 posted new all time highs as expected, registering at 1898.5 basis the June e-mini contract on the 13th May. Weakness followed for 3 days following the new high, but the market recovered somewhat on Friday. The long-term trend remains up.

The Nasdaq 100 remains considerably weaker as it continues to trade around the middle of its current range, but critically above the shelf of support at just above 3400, which keeps the long-term uptrend intact.

The Nikkei is still the weakest of the stock indices that we trade at LS Trader and remains the most likely to break down as it is currently the only 1 of 4 in a long-term downtrend. What is of particular interest here is the fact that this market sits just above key support, as does USD/JPY. These 2 markets are highly correlated as we have written previously, so moves in the Nikkei are mirrored in the dollar/yen. Should both of these markets break through support this could have a key impact on the broader market, as Japanese markets do play a key role in global markets.

Volatility remains at historically low levels and this week has seen the VIX fall to new lows yet again. A large spike higher in volatility is very much overdue.

Commodities

Commodities for the most part remain mixed, with only a handful of decent trends present, which are in Palladium, feeder cattle and soybean meal. Al 3 markets on the basis of continuous back-adjusted contracts remain near multi-year highs

Currencies

Currencies remain mixed as they have for several months. Overall the past week has been a good one for the dollar, but dollar gains are not universal. As mentioned above, USD/JPY remains poised above critical, trend-defining support, a break of which could be a key influence in several markets. The break of critical support would confirm a change of trend to down for this pair for this first time since September 2012. It should be noted however that USD/JPY tends to dance to its own drumbeat and a weaker dollar here does not suggest overall dollar weakness. The dollar can decline against the yen and rally against other majors, and often does.

It should also be noted that the commodity currencies of Australia, New Zealand and Canada all continue to do well and remain near the recent highs.

Interest rate futures

The 30-year T bond reached its highest level since May last year as the interest rate futures sector continues to strengthen. The 10-year T note also broke from its range as we suggested may happen in last week’s update. As mentioned above, price action in this sector is not consistent with a rising stock market and suggests something big may be building up! Interesting times are just around the corner.

Good trading

Phil Seaton

LS Trader

Weekly Update 11th May 2014 – LS Trader

With the exception of the currency markets, where volatility has seen a sharp increase this week, other markets have remained relatively quiet and still for the most part in their respective trading ranges. This means that the long-term trends on the basis of LS Trader‘s proprietary analysis still remain intact, and are up for stocks and interest rate futures, and still mixed for currencies and commodities.

It’s quite probable that the increase in volatility seen in the currency markets is the beginning of an increase in volatility to be seen across the other asset classes. This is exactly what is required to break numerous markets out of their respective ranges and lead to extended trends, instead of the choppy, sideways market conditions that have dominated most markets for much of the year to date.

Stocks

Comments made in last week’s updates for stocks still apply. The S&P 500 remains the strongest of the stock indices that we trade at LS Trader and we’re still looking for a test of all time highs that were posted on the 4th April at 1892.5. The Dax also remains within range of testing resistance and if successful, subsequently the all time highs posted back in January. The Nikkei is still the weakest of the 4 indices and is still the only index in a long-term downtrend, has fallen in 2 of the last 3 weeks and a test of critical support still looks likely.

Although currencies have seen volatility pick up during the past few days, volatility in stocks remains low and the VIX index remains low, which as we wrote last week indicates continued complacency, as has been the case since 2012. The VIX itself also remains in a narrow range.

Commodities

Commodities markets have once more been fairly quiet as the majority of commodity markets remain in the middle of trading ranges.

Corn came close to breaking out to new highs for the current move, but found resistance once again around the 524 level. Should this level be cleared, further rally to the next target at 575 may follow. The soybean complex saw some weakness early in the week before a recovery on Thursday and Friday. Soybean meal remains within range of new all time highs on the basis of the back-adjusted continuous contract. Wheat did clear resistance but has so far been unable to close above that key level. Should we see wheat get back above, and close above that level then we can look for further rally towards 775.

The metals markets remain mixed but silver, having been unable to clear near-term resistance at 1993 looks set to test critical support in the coming days, which if successfully broken would likely lead to further declines for gold.

Currencies

Currencies broke out of their recent trading ranges, but the breakouts were only temporary as volatility picked up. The 2 key levels that had been in play as resistance on the Euro and support on the dollar index both gave way, but only temporarily as the breakouts failed and these 2 markets returned to their respective trading ranges.

The pound reached its highest level since August 2009 but was unable to push on through key resistance and reversed during the latter part of the week in line with most other currencies.

Interest rate futures

The 30-year T bond rose to its highest level in almost a year as the trend for interest rate futures remains up. The 10-year T note came within a point of its March high, which represents key resistance in this market. So far the market has been unable to push beyond this resistance level and Friday saw a doji printed on the daily chart following the failure to breakout. This increases the importance of this level during the week ahead. A breakout would be bullish.

The 5-year T note remains further back in its trading range, but may catch up if the 10-year completes a successful breakout and the long bond continues with recent strength.

 

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Good trading

Phil Seaton

LS Trader

Weekly Update 4th May 2014 – LS Trader

The 2-day FOMC meeting came and went this past week, with relatively little impact on the market. Overall market conditions remain very quiet, with volatility in numerous markets near historically low levels, particularly in the currency markets. This is likely to change in the coming weeks for at least 2 reasons, firstly, volatility rarely remains low for a continuous extended period, and secondly, volume tends to decrease in the summer months.

There are key levels to watch out for in the markets this week, resistance in the Euro at the recent highs, resistance at all time highs for the S&P 500, and major support for the dollar index. The success or failure of the markets at these levels may have an impact on market direction over the coming weeks.

The long-term trends based on LS Trader’s proprietary analysis are still mixed for stocks, currencies and commodities, but up for interest rate futures.

Stocks

The S&P 500 remains the strongest of the stock indices that we trade at LS Trader and came close once again to testing all time highs that were posted on the 4th April at 1892.5. Due to the proximity of the market to all time highs, it’s reasonable to expect another test of these levels in the coming days.

The Nasdaq 100 rose for the week and is almost exactly in the middle of the range between the multi-year high posted earlier this year, and trend defining support at the matching lows of the year posted in February and April

The Dax remains within range of testing the all time highs, posted back in January, but continues to run into resistance. The Nikkei is still the weakest of the 4 indices and is still the only index in a long-term downtrend, and a test of critical support is still within range.

Volatility in stocks remains low and the VIX index remains low, as it has since 2012, indicating continued complacency.

Commodities

As is the case in currencies and stocks, volatility is on the low side in the majority of commodities markets as well and range-bound trading is still present in numerous commodity sectors.

Silver dropped briefly to its lowest level since June last year, but only briefly. The sharp intra-day fall on the 1st May was mostly reversed by the end of that trading day, printing a hammer on the daily chart which had follow through to the upside on Friday. However, the long-term trend is still down and new lows cannot be ruled out at this stage.

Palladium rallied to new highs for the current move, which was also the highest level seen in this market since July 2011. The 870 level is the next target, particularly as long as near-term support at 794.5 holds.

Feeder cattle is another commodity market still on the move, which this week reached new all time highs. This market has been in a continuous, steady uptrend for just over a year from the lows posted in April last year. New highs may still be seen, but with the RSI rising to 83, there may be a correction in the not too distant future.

Currencies

Key levels are still in play in the currency markets and we may once more see these levels tested. The two markets of particular importance are the dollar index, which rests narrowly above critical support, and the Euro, which is just below key resistance.

The British Pound remains the only currency that has broken through major support or resistance, and this week reached its highest level since August 2009. $1.7043, the 2009 high basis the continuous futures contract remains long-term resistance. Should that level eventually be cleared, there would be little in the way of technical resistance to prevent an extended rise.

Interest rate futures

The long bond reached its highest level since July last year and the long-term trend remains up for this market, as it does also for the entire sector. The 10-year T note is still the next strongest but remains in a box range that has been in place since last year. Friday saw a large range day in this market, but a test of resistance still looks likely, and a breakout would confirm the 30-year Bond’s rally. The 5-year note remains weaker and is back in the middle of its range.

Good trading

Phil Seaton

LS Trader