Weekly Update 28th September 2014 – LS Trader

The majority of the markets that we trade at LS Trader are in a very strong trending phase, as they have been for much of the past couple of months. This has resulted in a period of outstanding performance for the LS Trader system, which may reach triple digit gains for the year to date this week. Either way, the system will be posting an excellent return YTD by the end of the third quarter. Historically, the fourth quarter is the best performing quarter of the year for the system so we could post a very good return for the year, well above the 100% gain mark if the fourth quarter performs in normal fashion.

Stocks

The S&P 500 continued with weakness that began during the prior week and broke through an upward sloping trendline from early August in the process. This trendline was then tested from the underside on Wednesday but the line held and a big down day was seen on Thursday. This took the RSI down to 42.93, just above bull market support at 40. The long-term trend is still very much intact but whether the all time high at 2014.5 posted on Friday 19th September is the top remains to be seen. Whether the 40 level on the RSI holds over the next week or so will be a clue. If 40 is broken on the RSI, a move back to the August low at 1882.25 may follow.

The Nikkei rose for the week and came within 10 points of its 2014 high. This level may act as resistance, particularly if other global stock markets continue their recent declines. However, should a breakout occur, higher levels could be ahead. The RSI has remained in the bull range and there is plenty of room to the upside for further strength. Should the Nikkei clear resistance it would be at its highest level since November 2007, prior to the crash.

Commodities

Metals have continued with recent weakness this past week. Silver fell sharply early in the week to its lowest level since June 2010 and may head lower towards the next level of long-term support at 1580. Gold ended the week slightly lower but the big declines came from copper and palladium, with the later having declined sufficiently from the high posted at the beginning of the month to confirm a change of trend to down on the basis of the LS Trader proprietary trend algorithm. Copper may follow suit this week, with a change of trend being confirmed by a break of major support, a test of which looks to be imminent.

Currencies

The dollar index moved above the 85 level for the first time since July 2010 as the dollar continues to gain against the major currencies. The RSI this week rose to 84.75, which is a very bullish level and shows just how strong the dollar has been in recent weeks.

The dollar index’s rise was due to the continued collapse of the Euro, as well as the dollar rising to new highs against most of the majors. The Euro dropped to its lowest level in 2 years on the basis of the back-adjusted continuous contract. On the basis of sentiment, not a reliable timing indicator by any stretch, there is barely a Euro bull left. What this effectively means is that pretty much everyone who wanted to sell Euros already has so there will be little in the way of further selling pressure from new sellers. Therefore a bounce can be expected but this will not put much of a dent in the very established downtrend, and following a corrective bounce, if it comes, much lower levels should be seen over the coming weeks.

Interest rate futures

Interest rate futures posted gains for the week and the long-term trend still remains up for the sector. As has been the case for some considerable time, the short-term markets in the sector continue to underperform (exception being the Euribor) and a change of trend to down in the 5 year T note is within range, although a break of considerable support will be required before such a change is confirmed.

Good trading

Phil Seaton

LS Trader

 

Weekly Update 21 September 2014 – LS Trader

U.S stocks began the week with weakness, but this turned out to be just a short-term correction as the S&P 500 and Nasdaq 100 both broke out to new highs again on Friday, which in the case of the S&P 500 was an all time high.

The Federal Reserve meeting came and went, and dollar strength continued. The Scottish referendum resulted in the expected “No” vote and the Pound put in a relief rally before reversing on Friday in what looks like a case of “but the rumour, sell the fact”. The trend remains down for the pound and up for the dollar against all of the majors. Other long-term trends also remain unchanged and continue to favour stocks and interest rate futures, but remain against commodities.

Stocks

From last week on the S&P 500: “Long-term the trend is still very much up, but if the dollar continues to strengthen we may see further weakness in the S&P 500 and may see the RSI test the 40 level in the next week or so. Whether that level holds or gives way will be a good clue to near term price action.” The RSI did hold well above the 40 level, remaining in the bullish range and closing the week out at 64.46. This number in itself is bullish, but there is bear divergence between price and RSI. The long-term trend however is still clearly up, even if momentum is waning.

The Nikkei continues to trend nicely higher, benefiting as usual from a very weak Yen to reach its highest level this year, and within touching distance of the multi-year high posted on the 31st December 2013. A break above that high, at 16450, would have the Nikkei at its highest level since November 2007, prior to the crash.

Commodities

The CRB commodity index fell to new 4 years lows following the break of the key support level at 500 the week prior. This week’s continued weakness is confirmation of the break of support and any corrective rallies should now find resistance at the 500 level, leaving prices set to decline over the coming weeks towards the next key level of support at 450. This weakness in the CRB, combined with the fact that most of the long-term trends in the commodities markets are bearish, suggests still further weakness in these markets and likely continued long-term dollar strength.

Gold and silver both continued sharply lower following the break of key support during the prior week. Silver effectively collapsed through a critical level of support and is now at its lowest level in 4 ½ years.

Currencies

We discussed above the Scottish referendum and the short-term impact that it has had on the pound. We still look to new lows over the coming weeks in the pound, back below the recent low at 1.6039 as the long-term trend has not been impacted by the recent corrective rally and still remains down.

The dollar continues to rise and the long-term trend on the basis of LS Trader’s proprietary algorithm is up across the board. The dollar index came within 3 pips of major resistance at 84.96, which was the index’s highest level in over a year. The index has not traded above 85 since July 2010, so a break of that level would be bullish indeed and would possibly have major implications for stocks and commodities, neither of which would benefit from an even stronger dollar. The RSI on the dollar index is at a very bullish 79.91, but there is bear divergence between price and RSI.

The Japanese Yen has dropped to its lowest level since August 2008 in a move that is benefitting the Nikkei as discussed above. The RSI here has risen to 87.28 (USD/JPY forward), bullish levels that are rarely seen. It’s possible therefore that we may see a correction, but longer-term the dollar should continue to rise.

Interest rate futures

Interest rate futures were mixed this week. For now the long-term trend is up in all 5 interest rate markets that we trade at LS Trader, but as has been the case for a considerable time, the longer-term markets continue to hold up better than the shorter-term markets in the U.S.

Strongest market in the sector by far is the Euribor, but a top could be in. Further strength is unlikely due to the proximity of the market to par, a price level that is unlikely to be broken.

Good trading

Phil Seaton

LS Trader

Weekly Update 14th September 2014 – LS Trader

U.S stocks are showing signs that they may have topped, although that is as yet far from
confirmed, as the long-term trend is still very much up. However, the strong
dollar appears to finally be weighing on stocks as it already has on
commodities. The long-term trends are still up for stocks and the dollar, up
for interest rate futures and mostly down for commodities.

Stocks

From last week on the S&P 500: “There is nothing to suggest that a reversal lower is
imminent, but one would possibly have expected more decisive strength following
the break of 2000. Any bullish seasonal tendencies ended last week and we’re
now in what is historically the weakest month of the year for stocks.” The lack
of follow through following the break above 2000 had indicated that the rally
may be nearing and end, and price action confirmed that this week at least in
the short-term as the S&P 500 fell through support.

Long-term the trend is still very much up, but if the dollar continues to strengthen we
may see further weakness in the S&P 500 and may see the RSI test the 40
level in the next week or so. Whether that level holds or gives way will be a
good clue to near term price action.

From lastweek on the Nasdaq 100: “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 Nasdaq 100
continues to lose momentum and did close the week lower but still remains above
support. We expect that support to be tested in the coming days. Longer-term we
can look to the rising trendline from the April 15th low, which
currently intersects the market at 3950, just over 100 points lower than
Friday’s close. A break of that level may have longer-term bearish implications
but for now the uptrend is intact.

Commodities

The CRB commodity index, which is not an index that we trade at LS Trader but is
nonetheless a good barometer for commodity prices, broke through a key support
level this week, a level that has previously provided a good shelf of support
around the psychological 500 level. This week’s break of that 500 level, with
prices falling to 496.95, was the lowest level seen in the CRB in over 4 years,
and may have further bearish implications for commodities, most of which are
already in confirmed downtrends.

From last week on gold and silver: “The RSI is in a bear range and the long-term trend is
down, suggesting that new lows may be on the horizon. Gold has also been weak
and a test of key levels here may also be seen soon.” Both gold and silver fell
through support as expected, which resumed the longer-term downtrend for silver
and confirmed the change of trend to down on gold.

Also from last week: “A test of a key shelf of support in Natural gas looks likely this
week. This level, which has held since January this year may prove critical,
and a decisive break of support may pave the way for lower levels.” The shelf
of support held firm and natural gas bounced sharply higher on Monday and
Tuesday before reversing lower once more. A test of support looks likely once
again this week.

Currencies

The dollar continued to strengthen this week and completed confirmed changes of trend to
up on the basis of LS Trader’s proprietary trend indicator against the
Australian and Canadian dollars. This means that the long-term trend now
favours the dollar for all nine currency markets that we trade at LS Trader.

This week ahead may see volatility pick up considerably in the currency markets due to
the 2-day Fed meeting beginning Tuesday, and the Scottish referendum on
Thursday which may move the Pound around considerably.

Interest rate futures

The long-term trend remains up across the board in the interest rate futures sector but prices have been sharply lower this week.
A change of trend to down is coming within range for a couple of the markets in
this sector but further weakness will be required before that happens. Even the
Euribor, which has recently been by far the strongest of the interest rate
futures markets that we trade at LS Trader, ended the week lower, and as we
mentioned in last week’s update, further gains still look limited with par just
above current levels.

Good trading

Phil Seaton

LS Trader

 

Weekly Update 7 September 2014 – LS Trader

The S&P 500 posted new all time highs this week and made its all time high
weekly close at 2006. However, the advance following the break above 2000 has
not been overly convincing. The dollar has soared against the major currencies
in a week that has seen the collapse of the British Pound and the Euro amongst
others. Commodities have suffered under a stronger dollar and interest rate
futures have declined.

Stocks

The S&P 500 made new all time highs and a new all time high close was recoded
on Friday. The daily charts show a series of doji, which are indecision
patterns. The long-term trend is still very much up and the RSI continues to
gradually creep higher, closing Friday at a bullish 68.81. There is nothing to
suggest that a reversal lower is imminent, but one would possibly have expected
more decisive strength following the break of 2000. Any bullish seasonal
tendencies ended last week and we’re now in what is historically the weakest
month of the year for stocks.

From last week on the Nasdaq 100: “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.” These comments
still apply as the Nasdaq 100 ended the week higher by 8 points. It had earlier
posted a new multi-year high mid-week but corrected somewhat by Friday’s close.
The trend is still clearly up but momentum is weaker and the RSI is lower,
albeit still in a bullish range.

The Dax, still the weakest of the four stock indices that we trade at LS Trader continues
its recent strong recovery and this week the RSI rose above 60, which is a
bullish sign. If the RSI can gain some traction above 60 this week we may see
further strength back towards the all time highs posted earlier this year.

Commodities

Soybeans and soybean oil both fell to new lows for the current move and in spite of a
mild bounce higher at the end of the week both remain very bearish. The RSI is
however moving higher although it is still in a bearish range, so further
short-term strength may be seen. The long-term trend is still very much down
however.

Last week we wrote about the spikes that had been seen in silver, and wrote that the long
upper shadows indicated rejection of higher levels and that the long-term trend
remained down. This proved to be correct as silver sold off further this week.
The RSI is in a bear range and the long-term trend is down, suggesting that new
lows may be on the horizon. Gold has also been weak and a test of key levels here
may also be seen soon.

Key resistance levels held in the energy markets but this sector has seen very
volatile trading this week. In the crude oil markets (both Brent and Light) a
large drop on Tuesday was largely retraced on Wednesday, followed by further
weakness almost back to the lows of the week on Thursday and Friday.

A test of a key shelf of support in Natural gas looks likely this week. This level, which
has held since January this year may prove critical, and a decisive break of
support may pave the way for lower levels.

The long-term trend remains down across the energy sector and likely will for the remainder
of this year.

Currencies

Last week we wrote that we were looking for higher levels on the dollar index and had
targets of 8335. This level was reached and easily exceeded as the dollar
soared, particularly against the Euro and pound, both of which collapsed. The
Swiss franc was also sharply lower. The long-term trend now favours the dollar
in all the currency markets that we trade at LS Trader with the exception of
the Australian and Canadian dollars.

Interest rate futures

Short-term interest rate futures were the only markets in the sector to register strength this week.

The Euribor had another strong week helped by another large rally on Thursday, which easily pushed the December 15 contract to new highs. The trend is very much up but with par approaching, there may be limited room for further gains.

The longer-term markets all ended the week lower, which brought to an end a very profitable long trade on the 30 Year T bond, where the LS Trader system had been long since the 10th April.

Good trading

Phil Seaton
LS Trader

 

The lure of day trading

I often get emails from subscribers or even on occasion members to LS Trader who say something along the lines of “I’m making money trading with this longer-term position trading, but I really don’t have the patience for it and want to trade shorter-term”.

I got such an email today. My answer is always the same, if day trading or short-term trading worked, we’d trade that way. The fact of the matter is that short-term trading and day trading simply do not work and there are many reasons why that is the case. Here are just a few of the big ones:

  • Short-term traders have to be exceptionally good to make profits that are sufficient to cover the increased transaction costs, or spread in terms of spread betting
  • By definition, day trades are closed before the end of the trading day in which they are open, so the profit from a trade is limited to the daily range. Even if you caught the exact bottom of  a daily bar and sold at the exact top, in most cases that won’t be a huge move
  • Frequent trading is very stressful and leads to trader errors and emotions getting in the way, which will often lead to a trader ignoring his trading rules, something that is fatal to trading profitably.
  • Slippage can also be an added transaction cost. Although most day traders will stick to the more liquid markets where spreads are narrow, such as FX markets, and execution is normally good, slippage can and does still occur. This can make the losses incurred larger than one had accounted for.

There are more reasons than this but these are a few of the major ones. What it really boils down to is one simple question. Are you trading for excitement or to make money?

It’s quite amazing how few traders actually stop to ask themselves the reasons why they trade. If you don’t know why you are trading, how will you be able to develop the optimal approach for you to achieve your objectives? How will you know when you are being successful and achieving your targets if you don’t know what they are? And if you don’t answer these questions, how will you know when to change or refine your approach?

Personally I’m not interested in excitement when I trade, I’m only interested in being profitable. I don’t care how boring trading in the right way can be as long as it is profitable.

So, what about you? Have you asked and answered these questions for yourself? Is making money as a trader your real goal or are you just looking for excitement? If you are, the markets will provide this excitement for you, but it will be at a cost of not only your profits, but probably the majority of your trading account as well before you realise your error. Before you place your next trade, think about and answer these questions.

Good trading

Phil Seaton

P.S. If you are interested in trading profitably and learning the right way to trade, take a 30 day free trial of LS Trader by clicking here

 

U.S. Labor Day Holiday

U.S. markets will be closed today for the Labor Day holiday. Forex markets will be open as normal but will likely be quiet. Other global markets that we trade at LS Trader, such as the Dax and the Nikkei 225 will be open as normal.

Trading volume and volatility will likely pick up from tomorrow as traders and fund managers return to their trading desks. This month in particular promises to be an interesting one for various reasons, not least because stocks are at all time highs and that September is historically the weakest month of the year for stocks.

Good trading

Phil Seaton