Weekly Update 27th July 2014 – LS Trader

The Euro has fallen to new lows for the year and the dollar index came close to making an upside breakout, which may follow this week. Should the dollar index breakout and continue to rise, that may put some pressure on stocks around the time of the 2000 level being attempted on the S&P 500, as well as put further pressure on commodities, many of which are already in long-term downtrends. Volatility on the whole continues to rise in many markets, which bodes well for trading opportunities over the coming months.

Stocks

The S&P 500 posted new all time highs once again but pulled back on Friday. The psychological 2000 level remains in focus, but some weakness has been seen following Thursday’s new all time high. On a short-term basis we do have an evening star pattern, which is a bearish reversal pattern, suggesting further short-term weakness. The long-term trend however is still very much up.

From last week on the Dax: “The RSI continues to move back lower and may fall back below 40 in the coming days, which when accompanied by a break of support should point to lower prices in the near term.” The RSI fell just below 38 where a bounce higher was seen in both price and RSI. Weakness has subsequently followed and another test of key support looks likely this week.

Also from last week “The correlation between the Nikkei and USD/JPY remains intact, and both markets continue to hold above key support. The current chart pattern and RSI indicate higher levels for the Nikkei ahead, which would argue that support will hold on USD/JPY.” As expected, both the Nikkei and USD/JPY rose. The Nikkei matched its prior high but has so far been unable to push higher. Such a move may follow this week. Critical long-term support continues to hold on both markets, so the odds currently favour higher Nikkei and USD/JPY.

Commodities

Copper may be poised for a test of key resistance during the coming week. This market underwent a change of long-term trend to up at the beginning of July, but was unable to push higher and a correction followed. That correction looks as though it may be late in development and an upside breakout looks possible.

Cotton has been an extremely bearish market in recent weeks and has already racked up decent gains for the LS Trader system since we went short at the beginning of the month. The RSI has dropped to 18, which in and of itself does not mean that the market will reverse, merely that it is getting over-extended in the short-term. Markets can though remain over-extended for long periods so this is not by itself a reason to abandon the short position. The trend remains down and will remain so even in the even of a bounce higher.

Natural gas is another market under considerable downside pressure, and this week has seen the market close lower for three straight weeks, and five out of the last six, which has taken the market to its lowest level since January. The trend remains down.

Currencies

The Euro this week dropped to its lowest level this year and we keep our longer-term targets intact at $1.3293, which was the November 13 low basis the back-adjusted continuous contract. The Euro, which makes up 57% of the dollar index therefore remains very much in a long-term downtrend and even if prices bounce, which they may do, the long-term trend looks likely to be down for the foreseeable future.

The dollar index had a go at breaking resistance but has so far fallen short of completing the breakout. Such a breakout may occur during the coming week. Should the breakout prove successful, initial targets will be at 81.74.

Interest rate futures

Interest rate futures have had a mixed week but the long bond continues to lead the way higher. The long bond this week reached its highest level in over a year after a third straight week of gains. The long-term trend remains up for the sector but as before both the 5 & 10 year T notes have been unable to break through their own resistance levels to follow the 30-year bond higher. The trend remains up across the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 20 July 2014 – LS Trader

The trend change that we wrote about last week in the Euro finally happened, but the move has yet to be confirmed by a breakout higher in the dollar index. Should the index break higher then we will likely be due a period of dollar strength and weaker commodities. Such a move would also likely put some pressure on the stock indices, which so far continue to be resilient. All attempts at pushing stock indices lower have so far been met with buying, as illustrated on Friday.

Stocks

The S&P 500 came within a quarter of a point of its all time high, backed off and then recovered again on Friday, keeping the longer-term uptrend very much intact. Should the market be able to clear resistance at the current all time high, a test of the major psychological 2000 level may yet follow.

The Nasdaq 100 posted new multi-year highs as expected, then sold off before making a strong recovery on Friday. Here too the uptrend is very much intact.

From last week on the Dax “For now the trend remains up but the extent of current weakness may indicate that the top is in, and that following a likely bounce, weakness may resume.” We got the expected bounce and subsequent weakness, but so far that weakness has been unable to push through the prior week’s low, which now looks to be quite a key level for the medium term. The RSI continues to move back lower and may fall back below 40 in the coming days, which when accompanied by a break of support should point to lower prices in the near term.

The correlation between the Nikkei and USD/JPY remains intact, and both markets continue to hold above ley support. The current chart pattern and RSI indicate higher levels for the Nikkei ahead, which would argue that support will hold on USD/JPY. Time will of course tell.

Commodities

The CRB commodity index is not a market that we trade at LS Trader, but it is nonetheless a good barometer for overall commodity prices. This week the index fell to its lowest level since February, and on the basis of LS Trader’s proprietary trend analysis, has this week confirmed a trend change to down. This suggests that in the longer-term commodity prices will continue to weaken overall.

However, the RSI fell to 19.18 this week, which is fairly overextended to the downside. Therefore a bounce higher, which may coincide with short-term dollar weakness as discussed below, may be seen in the near-term before longer-term weakness takes hold once more. Over the coming weeks we may see the CRB index fall lower to test major support at 500, and possibly move below that level, which would be levels not seen since 2010, before the big top in commodities in April 2011

Currencies

The two key markets in the currency sector at present are the Euro and the dollar index, as we have covered in recent weeks. The Euro fell below key support on an intraday basis on Friday but was unable to hold below the support level. This price action argues for a bounce higher over the coming days (short-term dollar weakness) before the downtrend resumes. As of yet the break lower in the Euro is unconfirmed by a breakout higher in the dollar index.

The RSI’s failure to break above 60 on the Euro on the 30th June argues that a range shift to down has been completed and that the RSI should stay below 60 for quite some time, which argues long-term for lower prices. At the same time, the RSI reached 59.87 this week on the dollar index, so a move above 60 would be a bullish event for the index and argue for higher prices.

Interest rate futures

From last week “Interest rate futures rallied this week, with the 30-year T-bond uptrend remaining intact and possibly targeting the late May high.” The 30-year bond did rally further and exceeded the May high, but was unable to close above that level. The bond will need to break back above Friday’s high soon to keep the short-term focus towards higher prices, or a correction may follow. Both the 5 & 10 year T notes have both been unable to clear resistance so far, which adds to short-term downside pressure on the long bond.

Good trading

Phil Seaton

LS Trader

Weekly Update 13th July 2014 – LS Trader

A handful of commodities markets completed long-term trend changes to down as we suggested may happen in last week’s update. As yet we have not seen a change of trend for the dollar index and the Euro, both of which would be significant and would likely pressure commodities further. Further trend changes, based on LS Trader’s proprietary trend indicator, particularly in the commodities markets may follow.

Stocks

The S&P 500 came within a point of new all time highs on Monday, but was unable to push through end edged lower for much of the week, with a small recovery seen late in the week. A push to new highs cannot be ruled out and the possibility of a test of 2000 remains, although with the unconvincing price action seen this week it’s far from certain that the S&P will reach 2000, let alone clear that level.

The Nasdaq 100 came within a couple of points of making new highs for the current move but then backed off having failed to clear resistance. This led to some weakness mid-week before a recovery on Thursday and Friday. New highs remain within touching distance.

The Dax feel just short of breaking out to new highs and the failure to do so led to a sharp decline for the week, which also took out short-term support and saw the Dax make its lowest print since late May. For now the trend remains up but the extent of current weakness may indicate that the top is in, and that following a likely bounce, weakness may resume.

The Nikkei fell for the week but remains closely correlated with USDS/JPY, which continues to hold above critical support. Should support on USD/JPY hold, the Nikkei may well resume the uptrend in the coming weeks.

We wrote last week that an uptick in volatility was well overdue, and that although the move higher this week in the VIX (Volatility Index) was the largest in several weeks, the index still remains near multi-year lows. It is possible that the low may be in for the index but this depends very much on whether the S&P 500 makes new all time highs.

Commodities

We finally exited Feeder cattle, which has been the best trade of the year to date for the LS Trader system. We’d been long since 13th February, so the trade lasted just a couple of days under 5 months. The trade banked some 3127 spread betting points. The trend remains up for feeder cattle and it’s possible that the market will break to new highs once again following the completion of the current correction.

Gold has picked up in volatility terms since the breakout higher last week. This week saw some early weakness but then a break to new highs for the current move followed. Further strength towards 1393 may follow, basis the August contract. Silver has also risen along with gold, suggesting that the move may be for real since there is no divergence between the two precious metals. A possible target for silver is the high for the year to date, a break of which would be a bullish event.

Last week we wrote about the collapse of the soybeans sector and this continued this week, leading to a change of long-term trend to down. The rest of the grains sector has also displayed considerable weakness, with corn accelerating to the downside, and wheat also printing new lows for the current move. Oats is the last market in the sector that is still in a long-term uptrend, but that could change as soon as this week if the grains collapse continues.

Currencies

The currency markets remain fairly muted and tight sideways price action is the norm at present. Several of the major currencies continue to trade within very narrow bands on the basis of historical volatility. The one exception was a comparatively large bounce higher for the dollar against the Canadian dollar seen on Friday. Will this be the start of an increase in volatility in the currency markets? Time will tell, but a determining factor will likely be whether the dollar index and Euro breakout from their current trading ranges.

Interest rate futures

Interest rate futures rallied this week, with the 30-year T-bond uptrend remaining intact and possibly targeting the late May high. The shorter-term markets in the sector are also rising along with the long bond, but whether there is sufficient strength for the 5 & 10 year T-notes to breakout to the upside remains to be seen.

Good trading

Phil Seaton

LS Trader

 

Weekly Update 6th July 2014 – LS Trader

The past week was a shortened one due to the 4th July holiday in the U.S. The shortened week was still sufficient for the S&P 500 to post new all time highs once again. The major global index looks set for a test of 2000 in the next week or so.

The long-term trend analysis remains as before, up for stocks and interest rate futures, mixed for commodities and down for the dollar. There were tow changes of long-term trend this past week, as corn completed a change of trend to down, and copper to up. Further long-term trend changes in a few commodities and currency markets could be ahead; of particular significance would be a change of trend for the dollar index and the Euro.

Stocks

As mentioned above, the S&P 500 rose to new all time highs this week and the key psychological 2000 level is now very much within reach. Whether the market can reach and close above that level remains to be seen. It is quite possible that this level may prove to be a significant turning point, but for now the trend remains up.

The Dow 30, although not a market that we trade at LS Trader, but still one that we monitor due to its popularity, reached a new all time high having cleared 17,000 for the first time in its history.

In last week’s update we wrote on the Dax “The long-term trend is still up and it will be interesting to observe whether the 40 support level on the RSI holds over the coming week or so.” Turns out that support was found and the RSI never dipped below 40, keeping the long-term uptrend intact. A strong rally followed and took the Dax back to just a dozen or so points below the all time high. A breakout may well follow on Monday.

The volatility index continues to drop to new multi-year lows as market complacency reaches new extremes. There is bullish divergence on the RSI and it’s possible that should the S&P 500 fail to clear the 2000 level that may be the catalyst for a sharp rise in the VIX from the current historical low levels.

Commodities

Gold moved higher following the RSI range shift to bullish that occurred the previous week and a breakout above key resistance followed. The market was unable to hold above that resistance level and moved lower, but then recovered about half of the decline. The trend is up and another test of resistance looks likely in the coming days.

Silver moved slightly higher for the week, but the big moves in metals came from copper and palladium. Palladium recovered back to the previous high as we suggested would happen in last week’s update. Copper completed a change of long-term trend to up for the first time this year and now only silver from the metals sector remains in a long-term downtrend.

The soybeans complex collapsed and continues its sharp decline from all time highs in the case of soybean meal and soybeans. Changes of trend to down are very much in range for the beans complex.

Currencies

The dollar index edged higher for the week and a change of long-term trend to up based on LS Trader‘s proprietary algorithm is coming into range. A change of trend is also coming into range for both the Euro and the Swiss franc. These changes of course require price action to confirm them, which as yet has not happened. As mentioned above, should the dollar index change trend to up and begin trending higher, that could have significant impact on other markets, particularly commodities, and also stocks.

Interest rate futures

Interest rate futures were sharply lower this week but the long-term trend still remains up across the sector. Short-term support levels have narrowly held this week but it remains to be seen as to whether that remains the case once trading resumes next week following the holiday weekend.

Good trading

Phil Seaton

LS Trader