Weekly Update 31 August 2014 – LS Trader

Stocks continue to rise with the S&P 500 rising to new all time highs and finally reaching the 2000 level that we have been writing about for months. The dollar has also continued to rise with the dollar index reaching its highest level since September last year. Commodities have once more been mixed, and interest rate futures have risen once more, so the long-term trends for each of these sectors remains intact.

Monday is Labor Day holiday in the U.S. so U.S. markets will be closed.

Stocks

From last week on the S&P 500 “The 2000 level that we have been writing about for months on the S&P 500 still remains elusive, but we could see those levels this week.” After what seems like an age, the S&P 500 finally clawed its way to the 2000 level and basis the e-mini electronic contact, closed just above this level at 2001.5.

The days following the Labor Day holiday in the U.S., which is on Monday, are usually bullish although the week has closed lower in 4 of the past 5 years. However, September is historically the weakest month of the year so if there is going to be a stock market correction, this month is as likely as ever on the basis of historical seasonal tendencies. However, as we have said many times before, trend outweighs seasonal tendencies and there is no question that the trend is up. Technicals on the S&P 500 also remain bullish with the RSI very much in bullish territory, closing the week at 68.29.

The Nasdaq 100 reached its highest level since September 2000 and also has bullish technicals. On the monthly chart the RSI reading is 80.61, which is the highest monthly reading since the all time high. The daily has a slightly less bullish, but bullish nonetheless reading of 75.32. There is considerable bearish divergence on the RSI from early July to current levels. This does not mean that the trend is over or that a reversal is imminent, merely that momentum is waning.

The Dax, still the weakest of the four stock indices that we trade at LS Trader came within 7 points of the 61.8% retracement of the decline from early July and briefly crossed above the 200 day moving average, only to end the week back below the average and still in a long-term downtrend. Perhaps significantly, the RSI stalled below the 60 level, so the RSI remains in the 60-20 bear range. The Dax remains the most likely of the 4 indices to break lower.

Commodities

Soybeans have continued with recent weakness and this week fell to their lowest level since September 2010. Soybean oil also fell to new lows for the current leg once again, falling to its lowest level again since April 2009 and may possibly head lower still. Soybean meal remains the strongest of the soybeans complex and once again looks set to test resistance in the coming days.

Palladium reached its highest level since 2001, moving further above the 900 level, closing the week at 909. Palladium is by far the most bullish of the metals at present. Gold and silver continue to move sideways. Silver had a couple of spike rallies higher this week but the long upper shadows indicate rejection of higher levels and the long-term trend remains down.

The energy markets rallied and the end of the downtrend in the short-term may be confirmed this week, although the long-term trend remains down across the sector and likely will for the remainder of this year.

Currencies

From last week on the Euro: “The focus is now towards still lower levels. The dollar index, which trades inversely to the Euro continued its recent advance and pushed to new highs for the current move, with the focus towards still higher levels and possibly as high as 8335.” The trend is still very much down for the Euro and up for the dollar index, but both are reaching levels where a correction could be due, both in terms of technicals and in terms of sentiment, which is reaching bearish extremes on the Euro. This suggests a possible bounce in the near-term for the Euro, which would equate to short-term weakness in the dollar index. However, the longer-term trends will remain intact for the foreseeable future in both of these markets and following a likely correction both have much further to go in the direction of their respective long-term trends.

Interest rate futures

Interest rate futures rolled from September to December this week as resumed their upward move. The 30-year T bond exceeded the highs posted earlier this month to reach its highest level since June last year. The 30 year T bond continues to find support from the upward sloping trendline from the late July low.

The 10 year T note also rose for the week but is not as bullish as the long bond, and the 5 year note remains weakest of the 3. The Euribor had a strong week helped by a large rally on Monday and the trend here remains up too, as it does for the 3 month Eurodollar.

Good trading

Phil Seaton

LS Trader

Weekly Update 24 August 2014 – LS Trader

The S&P 500 posted new all time highs and the Nasdaq 100 also posted a new multi-year high. The dollar has also continued its advance and commodities have for the most part remained weak. The long-term trends are still therefore up for stocks and interest rate futures, still mixed in the currencies but mostly favouring the dollar, and down for the majority of currencies.

Monday is a Bank Holiday in the UK, but that should make little difference, as the majority of other global markets are open as normal.

Stocks

The S&P 500 broke out to new all time highs and in the process confirmed the Nasdaq 100’s earlier breakout. The 2000 level that we have been writing about for months on the S&P 500 still remains elusive, but we could see those levels this week, although there is bearish divergence on the RSI on both the Nasdaq 100 and S&P 500. That does not point to an imminent reversal and just indicates that momentum is waning, something that is also evident on the price chart.

The Dax remains the weakest of the four stock indices that we trade at LS Trader and is also the only index that is below its 200-day moving average. It therefore remains the only one of the four in range of a downside breakout. The RSI also turned lower having been unable to push above 50, and remains in a bear range.

The Nikkei rose on the back of Yen weakness. The Nikkei moves inversely to the Yen, so a weaker Yen is good for the Nikkei. If we see a breakout lower in the Yen this week, we may see an upside breakout in the Nikkei, where 7 month highs remain in range.

Commodities

Commodities have been mostly weak, but a couple of commodities that have been in steep downtrends of late did rise sufficiently to exit their profitable trends. Cotton was one such market, which had been very profitable in recent weeks for the LS Trader system, but this week broke above resistance, ending the trade. The long-term trend is still very much down and we may yet see a break to new lows after this counter-trend move runs its course. The same can be said of both corn and rough rice, two of the grains markets that have made nice, profitable moves to the downside in recent weeks.

Soybean oil fell to its lowest level since April 2009 and remains in a very steep downtrend, in another move that has so far been very profitable for the LS Trader system. Soybeans have also been weak and remain near recent lows. Soybean meal also remains in a long-term downtrend but we may see a test of resistance during the coming week as meal remains the strongest of the soybean complex.

The metals markets have been mixed; gold and silver have both been weak and have dropped to multi-week lows but copper and palladium have shown signs of strength. Palladium in particular broke to new highs for the current move, crossing 900 for the first time since 2001.

Currencies

The Euro broke out of the narrow short-term trading range to the downside and reached and then exceeded our long-standing target of $1.3293 basis the continuous contract. The focus is now towards still lower levels. The dollar index, which trades inversely to the Euro continued its recent advance and pushed to new highs for the current move, with the focus towards still higher levels and possibly as high as 8335.

The British Pound continued recent weakness and the long-term trend remains up but possibly not for much longer. Last week we suggested that we might see further weakness towards the 200 day moving average may follow, which it did, and the pound closed below this long-term average for the first time since August last year.

Interest rate futures

Interest rate futures were unable to continue the advance seen in recent weeks, and pulled back from the highs posted the prior week. The long-term trend however remains up across the sector in spite of short-term weakness. This week sees the September contract roll forward to December.

 

Good trading

Phil Seaton

LS Trader

Weekly Update 17th August 2014 – LS Trader

Stocks have spent much of the past week rallying, which has kept the long-term uptrend for stocks intact. The dollar has for the most part moved sideways and the long-tern trend for the dollar is still mixed. Interest rate futures have rallied sharply, keeping the long-term trend up, and commodities have continued with weakness overall and the long-term trend for most commodities remains down.

Stocks

The Nasdaq 100 was the strongest of the stock indices this past week and is the only index to completely retrace prior weakness. This move though goes unconfirmed by the S&P 500 and the Dow, and further gains may prove limited unless those two indices can also retrace recent declines. It’s notable that other international indices remain weaker than their U.S. counterparts.

From last week on the Dax: “The trend is now down but we’d like to see a move back below the prior support level early next week for an accelerated move lower, otherwise a short-term bounce may be seen.” The Dax was unable to push below the resistance line and the expected countertrend rally followed. This rally looks to be corrective and Friday’s weakness suggests we may see further weakness soon and possibly a break to new lows.

Of the 4 stock indices that we trade at LS Trader, only the Dax is below the 200 day moving average, and only the Dax is in a long-term downtrend on the basis of LS Trader’s proprietary trend analysis.

Commodities

The energy markets broke sharply lower this week, resuming the long-term downtrends for no leaded gas and heating oil, and confirming a trend change to down for Brent crude. Friday’s rally in light crude narrowly kept the long-term uptrend intact but this may change soon if weakness persists next week. Natural gas also looks poised to break lower and may fall sharply should key support levels be broken. It’s significant that the recent corrective rally was unable to clear 50 on the RSI, which shows that the range for natural gas is still bearish.

Currencies

We’ve seen relatively quiet price action in the currency markets, where both the Euro and dollar index have effectively traded sideways in a narrow range. The long-term trend remains down for the Euro and up for the dollar index.

The big move amongst the major currencies came from the British pound, which moved sharply lower on Wednesday and dropped to its lowest level since April, falling below intermediate support. The long-term trend remains up for the pound but further weakness towards the 200 day moving average may follow, which currently sits at $1.6619.

Interest rate futures

From last week “Price action early next week will be important as the 30 year bond ideally needs to hold above prior resistance, which should now act as support if the trend is good, and the 10 year note needs to regain that support level quickly.” We were looking for early resumption of strength in the interest rate futures markets and we got that, with the 5 & 10-year T notes breaking to new highs for the current move.

Strength in these two markets though lagged the 30-year T bond, which showed impressive strength during the second half of last week, keeping the long-term uptrend very much intact. The RSI on the 30-year T bond has reached its highest level since February and shows that momentum is still strong, keeping a focus towards higher prices over the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 10 August 2014 – LS Trader

Most markets had been trading in the direction of their respective trends until we got a sharp one-day reversal on Friday. This reversal was seen in several markets and sectors, including stocks, currencies and interest rate futures. Such one-day moves do not reverse the prior trend, but can be indicative of a short-term reversal that may last a few days before the prior trend resumes.

The long-term trends still remain intact with the trends being up for stocks (exception being the Dax), up for interest rate futures, mixed for currencies and mostly down for commodities.

Stocks

From last week on the S&P 500 “The RSI has fallen below the key 40 support level, so basis the RSI the trend is now down, but as yet not confirmed by price action, as further weakness is still required for a change of long-term trend.” The S&P 500 drifted lower throughout the week until the reversal on Friday, which resulted in the S&P 500 closing up by a few points for the week. The long-term trend remains up, but short-term is still under pressure.

From last week on the Dax: “Key support was taken out and the RSI moved decisively into bear territory, ending the week at 28. The long-term trend is still up but that may change soon as the market looks set for a test of critical support in the coming weeks.” The Dax did continue lower sufficiently to complete a change of trend to down. The Dax is by far the weakest of the 4 stock indices that we trade at LS Trader, and has shed some 1153 points from the all time high printed on the 20th June. The trend is now down but we’d like to see a move back below the prior support level early next week for an accelerated move lower, otherwise a short-term bounce may be seen.

The VIX rose to its highest level since April on Friday but was unable to hold on to the gains and closed the week flat. This reversal occurred in synch with Friday’s stock rally as the VIX and stocks are inversely correlated.

Commodities

Orange juice is not a market that we cover very often in the LS Trader weekly update, but there is currently a nice move to the downside underway. The market bounced the week before last from a support level that has held for all of 2014, but this last week has seen the corrective move end and the market has dropped back to the prior support level. This has OJ at an interesting juncture between recent lows and last week’s highs. If the trend is good, last week’s highs should provide resistance and support levels should be decisively broken. If they are, we can look for further downside action towards the 120 area over the coming months.

Currencies

The Euro declined to within range of our downside target at $1.3293, but did not quite fall that far before a bounce higher was seen. The bounce has broken the short-term trendline and puts the trend under pressure in the near term, but longer-term the downtrend remains intact and we should eventually see $1.3293 and ultimately considerably lower levels over the coming months.

Last week on the dollar index we wrote: “The trend is still up and the correction should ideally end above 81.00 where prior resistance should now become support.” The dollar index, which moves inversely to the Euro, did make new highs for the current move but then pulled back on Friday, and may head lower for a possible test of support over the coming days. The long-term trend for the dollar index remains up, and the trend for the Euro remains down.

Interest rate futures

From last week “The 5 & 10 year T-Notes saw similar midweek weakness followed by strength on Friday to complete morning star bullish reversal patterns.” Following the morning star patterns, both of these markets rallied sharply, with the 10 year note breaking to new highs, but then put in a sharp one-day reversal on Friday. The 5-year T note failed to breakout, so there is non-confirmation of the breakout of the longer-term markets. Price action early next week will be important as the 30 year bond ideally needs to hold above prior resistance, which should now act as support if the trend is good, and the 10 year note needs to regain that support level quickly.

Good trading

Phil Seaton

LS Trader

Weekly Update 3rd August 2014 – LS Trader

From last week’s update “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”. The dollar index did continue its rise and completed a successful breakout; the Euro fell to new lows for the year and stocks sold-off sharply, all in line with expectations. For now the long-term trends remain intact, up for stocks and interest rate futures, mostly down for commodities and mixed for the dollar.

Stocks

For several weeks we have been writing about the 2000 level on the S&P 500 and suggested that should the dollar rise, a spanner may be thrown into the works around the time of an attempt at 2000. 2000 was not seen and this was the first week in a few where a new all time high was not seen.

From last week on the S&P 500 “On a short-term basis we do have an evening star pattern, which is a bearish reversal pattern, suggesting further short-term weakness.” That weakness was certainly evident this week as the S&P sold off drastically. On the weekly chart we have what is almost a key reversal pattern but for the fact that new highs were not seen. Friday’s close engulfed the lows of the past 7 trading weeks, so the price action has done considerable chart damage. The RSI has fallen below the key 40 support level, so basis the RSI the trend is now down, but as yet not confirmed by price action, as further weakness is still required for a change of long-term trend.

From last week on the Dax: “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.” Key support was taken out and the RSI moved decisively into bear territory, ending the week at 28. The long-term trend is still up but that may change soon as the market looks set for a test of critical support in the coming weeks.

The VIX rallied sharply as the first signs of fear entered the stock market. The VIX rose to its highest level in 10 weeks and may continue to rise higher, particularly if stocks breakdown further.

Commodities

Last week we wrote about cotton and said that even though the market had become over-extended to the downside, that did not preclude further weakness. As long time readers will know, we don’t use the phrases overbought and oversold, because there is no such thing, and instead use overextended. Markets can remain overextended in either direction for long periods of time and the weakness in cotton, as well as in several other markets, particularly grains is ample proof of that.

Several commodities markets have made decent moves this past week, and it looks as though the seemingly endless period of quiet low volatility is at an end. Volatility has clearly picked up in several markets and sectors, including stocks, commodities and interest rate future. This bodes well for profitable trading opportunities over the coming months.

Currencies

Our downside target for the Euro remains intact at $1.3293 following this week’s declines to new lows for the year. A bounce was seen on Friday, which was not surprising, but the longer-term downtrend remains intact.

Last week on the dollar index we wrote: “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.” Such a breakout did occur and the index rose to within pips of 81.74, but stalled at 81.66 and then moved lower, closing the week at 81.37. The trend is still up and the correction should ideally end above 81.00 where prior resistance should now become support.

Interest rate futures

The long bond rose to its highest level since 17th May this week at just a shade over 139 but was unable to push higher and a sharp reversal followed that ended just a couple of points above support. From support the market rallied again to keep the long-term uptrend intact.

The 5 &10 year T-Notes saw similar midweek weakness followed by strength on Friday to complete morning star bullish reversal patterns. Both of these markets have been weaker than the long bond, but the trend is still up across the sector.

Good trading

Phil Seaton

LS Trader