Weekly Update 27 October 2014 – LS Trader

Both the dollar and stocks have moved higher over the past week. The bullish uptrend for the dollar remains intact and up across the board and a break to new highs for the dollar index and the dollar against several of the majors looks likely in the coming days. Stocks continue their recent recovery in sharp fashion. This coming week may be key as to whether they continue to rally to new highs or fail, as discussed below. Watch for the RSI as it approaches 60. If it breaks through 60 decisively, further rally would be likely.

Stocks

It’s been a second strong week for stocks, which have rallied sharply from the lows printed on the 15th October. It will be interesting to see if the RSI on the S&P 500 is able to clear 60, which is the level that markets in a downtrend typically find resistance. Currently the RSI is at 55.96. The rally from the 15th October has now retraced over 61.8% of the decline from the all time high at 2014.5 and is now approaching the 78.6% retracement, which stands at 1971.38. Typically when a market corrects much beyond that level it goes on to test the prior high. Time will tell.

The Nasdaq 100 is stronger still and having never dropped sufficiently to give a change of trend to down, remains in a long-term uptrend and will likely be the first to test its recent high should the recent stock market rallies continue.

Considerably weaker than U.S. stocks are the Nikkei and Dax, with the Dax being the weakest and likely the first to break to new lows on renewed weakness.

Commodities

After being in a downtrend for months, the grains sector is showing signs of life. Oats is the first market in the sector to give a change of trend to up although there was quite a nasty one-day reversal on Friday. Other markets in the sector, particularly soybean meal, have shown considerable strength near-term. Several markets have broken their downward sloping trendlines that have been intact from the start of the year. Soybean meal broke cleanly above the 60 level on the RSI, which is further evidence of renewed strength. However, the long-term trend still remains down.

Natural gas continues its decline and fell this week to its lowest level since January. We may see continued weakness over the coming weeks towards the low of the year on the basis of the back-adjusted continuous contract at 3.224.

Currencies

The dollar has risen against the majors this week but continues to consolidate below its recent highs. The RSI on the dollar index found support just below 50 and therefore remains in the bull range. The long-term trend is still up and new highs above 86.87 look likely. Such a move would also see the Euro fall below its early October low and go below 1.25 for the first time since August 2012.

From last week on cable “we’ll look for the RSI to run into resistance between the 50-60 level.” The RSI peaked at 49.51 on Monday and cable headed lower through to Friday, where a small recovery was seen. The long-term trend is down and a break to new lows cannot be ruled out.

Interest rate futures

Interest rate futures have edged lower throughout the week and these markets have now fallen back to the proximity of support. The prior highs posted at the late August peak should now provide support if the trends are still good. These levels look likely to be tested in the coming days. If these support levels are broken it’s likely that the tops are in for the time being and that we will see a period of further weakness. The long-term trends however all remain intact for now.

Good trading

Phil Seaton

LS Trader

Weekly Update 20 October 2014 – LS Trader

It’s been another active week in the markets that has seen volatility continue to pick up. This was amply highlighted by a rise in the VIX to levels not seen since the Euro crisis in 2012. In last week’s update we wrote: “The Vix made a huge rally on Friday and for the week, reaching levels not seen in almost a year. This indicates that volatility and fear are returning to the markets having both been absent for long periods.” The rise in the VIX this week also indicates a return to fear amongst market participants, but this was somewhat reduced by the end of the week following a 2-day recovery rally in stocks.

Stocks

From last week on stocks : “The past week has seen considerable weakness in stocks, which continue to look as though they may have already posted significant highs and are now headed towards lower levels.” Also from last week on the S&P 500: “The RSI broke through the 40 level and a test of key support at 1882.25 now looks likely. Should that level give way, we can look another 40-odd points lower towards critical trend-defining support.” 1882.25 did give way early in the week and the S&P 500 sold off sharply, easily shedding the further 40 points that we expected, in fact falling all the way to 1813 before bouncing higher. The recovery rally from Thursday’s low completed a morning star bullish reversal pattern, so stocks may rally a bit further next week, but the long-term trend is now down.

The Nikkei at one point this week shed another 690 points, dropping over 2000 points in just 3 weeks. A bounce higher was therefore not unexpected. The long-term trend is still up but the recent decline has done significant technical damage and a change of trend to down could be confirmed soon.

The Dax fell 415 points through to Thursday’s low before bouncing higher in line with other global stock indices. The strong rally here also completed a morning star reversal pattern so we may also see some further strength here early next week. However, the long-term downtrend is now well established and lower levels should be seen over the coming weeks.

Commodities

Big moves have been seen once again in the energy sector. Crude fell for a third straight week and printed below the $80 level for the first time since June 2012. A recovery has since been seen but the trend remains down, as indeed it does for all the markets in the sector. Brent crude fell to lows not seen in almost 4 years. The RSI in Brent fell to a rare low level of 11.5 on Wednesday, so the bounce seen since then is not really too surprising. However, the trend here is still very much down and a move to new lows cannot be ruled out. This has so far been an extremely profitable short trade for the LS Trader system and we continue to ride the trend lower.

The critical shelf of support that has been holding natural gas up for the past 3 months finally gave way as expected. This level should now provide resistance if the newly established downtrend is good.

Currencies

The currency markets have spent much of the week consolidating, although some of the majors have made some moves during the week before ending back near where they started. The US dollar rose to new highs against the Canadian dollar, reaching levels not seen since 2009. Following the new high print a correction has been seen, but the move higher may resume from near current levels.

Cable fell to its lowest level since November last year before also correcting higher during the second half of the week. The RSI has recovered back to 45.72 at daily chart level and if the downtrend is to remain intact near term, we’ll look for the RSI to run into resistance between the 50-60 level.

Interest rate futures

Interest rate futures futures rallied sharply through to Wednesday’s high before giving back much of the week’s gains by Friday’s close. The RSI on the long bond reached its highest level since May 2012, which was part of the run up to the all time high posted in July of that year. The extent of the reversal seen this week puts some question mark against whether we will still see a test of the 2013 high. The long-term trend is up across the sector.

The weakness seen this week in the Euribor was sufficient for us to exit our long trade that had been open since 11th April. That had been a good profitable trade for the LS Trader system, in a market where the volatility has all but dried up again even for the contracts that are further out on the curve.

Good trading

Phil Seaton

LS Trader

 

Weekly Update 12th October 2014 – LS Trader

The past week has been a very active one in the markets, one that has seen the dollar’s rally come to an abrupt halt before a mild recovery towards the end of the week. It has also seen considerable weakness in stocks, which continue to look as though they may have already posted significant highs and are now headed towards lower levels.

The long-term trends are all intact but stocks may be on the verge of a change of trend to down, which will be confirmed with additional weakness.

Stocks

From last week on the S&P 500 “The long-term trend is still up but last week’s low may be key in the short-term, and if broken along with a break of 40 on the RSI, a move back to the August low at 1882.25 may follow.” That low did initially provide some support before giving way, and considerable weakness followed on Friday. The RSI broke through the 40 level and a test of key support at 1882.25 now looks likely. Should that level give way, we can look another 40-odd points lower towards critical trend-defining support.

The Nikkei, having at one point shed almost a thousand points during the prior week made a similar decline this week. For now the long-term trend is still up but that may change. The RSI, which moves ahead of price has already completed a range shift to down following the break below 40. Further weakness towards critical trend defining support may follow over the coming week or so.

The Dax continues to be the weakest of the stock indexes that we trade at LS Trader, and was the only one of the four that was already in a long-term downtrend; the August to mid-September corrective rally being insufficient to produce a change of trend to up. This week saw the Dax break critical support and resume the long-term downtrend. The RSI dropped to a bearish 22.78.

The Vix made a huge rally on Friday and for the week, reaching levels not seen in almost a year. This indicates that volatility and fear are returning to the markets having both been absent for long periods.

Commodities

From last week on gold and silver “Sentiment in both metals is extremely bearish, with silver bulls coming in at just 4%. This does not guarantee a rally but does show that selling pressure may be running out of steam as presumably virtually everyone who wanted to sell precious metals already has.” A corrective rally came right on cue, following a decline in the yellow metal to $1183.3, just $3 above our long standing target of $1180. However, the long-term trend is still down and it would be premature to suggest that following this correction, new lows will not be seen, both here and in silver. The RSI in both metals is still very much in the bear range.

Large moves were seen in the energy markets as the entire sector fell. The long-term trend had been down for quite some time already, but this week saw an acceleration of the downtrend through to new lows for the current move before a mild recovery on Friday. The RSI in each market is in the bear range, with the exception of natural gas, which is narrowly clinging on to a shelf of support.

Currencies

From last week on the dollar index “Longer-term we continue to look for higher prices, but with the current rally in the dollar at near parabolic extremes, and sentiment at levels rarely seen, a correction would not be surprising in the least. There is short-term bear divergence in the RSI as well”.

The dollar rally ran out of steam, leaving the dollar index unable to extend its 12-week rally. An overdue correction has been seen and as of yet it’s not clear whether the correction has run its course, or if there will be further weakness. Either way, the long-term trends all favour the dollar and following the end of the correction new highs for the dollar should be seen.

Also from last week “Weekly RSI on the Euro has dropped to 14.86, a low not seen since 1997. Sentiment is also at bearish extremes for the Euro.” The Euro also bounced higher as expected and other currencies duplicated the rally against the dollar.

Interest rate futures

Interest rate futures continued with strength that began the previous week, keeping the long-term uptrend intact across the board. The long bond and both the 5 & 10 year T notes all rallied to their highest level this year and may now be set to rally further to test their respective 2013 highs.

Good trading

Phil Seaton

LS Trader

 

Weekly Update 6 October 2014 – LS Trader

The LS Trader system has continued its recent run of excellent performance, clearing the 100% gain level for the year to date, ending the first quarter up by 103.79%*. This leaves the system well on target to post another excellent year, potentially well above the 100% level, particularly with the historically strong fourth quarter ahead.

The long-term trends are still intact, and remain up for stocks, the dollar and interest rate futures, and mostly down for commodities.

Stocks

The S&P 500 sold off sharply through to the low on Thursday, which took the RSI briefly below the key 40 level. A strong bounce occurred at Thursday’s low with follow through on Friday, with the completed pattern printed being a morning star, which is a bullish reversal pattern. Friday’s high halted at a short-term trendline from the all time high. The long-term trend is still up but last week’s low may be key in the short-term, and if broken along with a break of 40 on the RSI, a move back to the August low at 1882.25 may follow.

The Nasdaq 100 followed a similar path to the S&P 500, but in terms of the RSI, the Nasdaq was slightly stronger, holding above 40, which kept the bull range intact. Whether there is sufficient strength in the U.S. stock markets to muster one more rally back to new highs remains to be seen.

The Nikkei was unable to break through the resistance level that we wrote about last week, which was at the 2014 high. From last week: “This level (2014 high) may act as resistance, particularly if other global stock markets continue their recent declines.” Resistance held firm and the Nikkei sold off quite steeply, shedding almost 1000 points through to Thursday’s low, before a bounce occurred and the week finished with some strength. The long-term trend is up here as it is for 3 of the 4 stock indexes that we trade at LS Trader, the exception being the Dax.

Commodities

Gold and silver both fell to new lows for the current move. Gold’s low at $1190.3 is just $10 above our long-standing $1180 target, and that level may be seen this week. Gold has not printed this level since the first week of the year and if broken, further downside could be seen. Silver’s low for the week is its lowest print since March 2010. We have long-term targets for silver at 1580. Sentiment in both metals is extremely bearish, with silver bulls coming in at just 4%. This does not guarantee a rally but does show that selling pressure may be running out of steam as presumably virtually everyone who wanted to sell precious metals already has.

Copper confirmed a change of trend to down following a break of major support, which we suggested would happen in last week’s update. This makes the long-term trend down for all 4 metals markets traded by LS Trader. So far there has been limited follow through, but the market did close below the key 300 level.

Currencies

The dollar index rally continues, this week reaching new 4-year highs. There had been good resistance around the 85.60 to 85.80 level, and this was easily cleared. This level may now act as support should a correction, which seems likely, occur. Longer-term we continue to look for higher prices, but with the current rally in the dollar at near parabolic extremes, and sentiment at levels rarely seen, a correction would not be surprising in the least. There is short-term bear divergence in the RSI as well, but as yet no price evidence to suggest a turn, so we continue to ride the trend.

The dollar continues to advance against all the major currencies and pushed the Pound down to its lowest level since November last year. Euro futures are at their lowest level since August 2012. Weekly RSI on the Euro has dropped to 14.86, a low not seen since 1997. Sentiment is also at bearish extremes for the Euro.

Interest rate futures

Interest rate futures all rose this week but each market failed below resistance levels. The long-term trend is still up across the sector with the 30-year T bond still leading the U.S. markets. A change of long-term trend to down is within range for the 5 & 10-year T notes, as it is also for the 3 month Eurodollar, but lower levels will be required in each case to confirm such a change.

Good trading

Phil Seaton
LS Trader

*Past performance is no guarantee of future performance. Future results may be higher or lower than past results.