Weekly Update 28 December 2014 – LS Trader

The past week, which has been a shortened week due to the Christmas holiday, saw the S&P 500 post new all time highs yet again. The dollar has also gained and the energy markets have continued recent weakness.

There’s just 3 trading days left of 2014 and on the basis of strong seasonal tendencies for stocks we may see further new all time highs and possible breakouts for the remaining global stock indices traded by LS Trader, each of which are within range of new highs for the year.

The LS Trader system is poised to have its best year since 2008, and regardless of what happens in the next 3 days the system’s returns for the year will be well into triple figures. This has largely been due to a return to strong trending markets across several sectors, in particular the bear market in the energy sector, and is something that we think will continue overall for some time yet.

Stocks

Barring a flat close on Christmas Eve, the S&P 500 would have made a pretty rare feat of closing higher for seven straight trading days. The Dow 30 did manage this feat with seven consecutive higher closes, which has not ben seen since the Dow made 10 higher closes back in early March 2013. Trading volume has been extremely light with Boxing Day trade being the slowest full-day volume of 2014 so far.

From last week on the S&P 500 “A move above last week’s all time high with a clear move above 60 (RSI) would suggest further strength in line with the strong seasonals and Santa Claus rally.” The S&P 500 did post new all time highs and the RSI also moved above 60, ending the week at 63.46, which has the RSI back firmly in the bull range. Further strength looks likely over the week ahead. Historically the Santa Claus rally runs through to the first 2 trading days of the New Year so does not end this year until the 5th. Whether the rally continues that long (or even longer) remains to be seen.

Commodities

Both gold and silver continue to trade within the middle of the recent trading range. The long-term trend remains down for both metals and sentiment is also at low levels. Friday did however see a decent rally for both precious metals but considerable strength will be required for a change of trend to up. The RSI is in the bear range on both markets and should further rally be seen, resistance may be found around the 60 RSI level.

The energy markets have continued lower with all 5 markets making new low weekly closes for the current bear market. Natural gas really accelerated lower having gapped lower at the open on Monday and continuing lower throughout the week. The LS Trader system is of course naturally short all 5 energy markets, each of which are hugely profitable at present.

Currencies

The dollar index this week printed above 90, a level not seen since 2006. This rally has now retraced just pips over the 38.2% retracement level of the decline from 120.99 printed back in July 2001 and bullish sentiment is up to 91%. The dollar trend remains bullish across the board and higher levels cannot be ruled out.

The inverse of the dollar index is the Euro, which this week fell to its lowest level since mid-2010. Here sentiment has dropped to very low levels and is down to single figures. That does not mean that further weakness cannot be seen as we have seen similar low bullish sentiment earlier this year and the Euro continued to fall. Unsurprisingly the RSI has dropped to a bearish 35.83. There is also bullish divergence between price and RSI from early October to current levels.

Interest rate futures

Interest rate futures have moved lower this week but for now the long-term trend remains up across the sector. The RSI remains in the bull range but only just in the case of the 5 year T note which is holding just above the 40 support level. Should 40 be broken on the RSI we may see further weakness sufficient to lead to a change of trend to down in the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 21 December 2014 – LS Trader

Stocks put in a huge recovery rally that resulted in the S&P 500 printing a new all time high late on Friday. The other stock indices also rallied but did not breakout to new highs. The dollar had a very mixed week that initially continued with weakness that began the prior week but resulted in a breakout to new highs for the dollar index.

In spite of a few choppy moves, the LS Trader system has risen to new equity highs for the year and also new all time highs for equity since our data began back in 1983.

Stocks

From last week on the S&P 500 “the extent of the collapse and the strong seasonal bullish tendencies as we enter that last couple of weeks of the year would suggest a possible rally to retrace some of last week’s declines.” Seasonal tendencies came to the fore and a huge rally was seen in the S&P 500 which led to a new all time high print on Friday. The breakout in the S&P has so far been unconfirmed by the RSI, which interestingly halted right at the 60 level on Friday. A move above last week’s all time high with a clear move above 60 would suggest further strength in line with the strong seasonals and Santa Claus rally.

Historically the Santa Claus rally runs for the last 5 trading days of the year through to the first 2 trading days of the New Year, so in this instance that would begin on Tuesday. Should we see the Santa rally this year we would see further all time high prints for the S&P 500 and likely upside breakouts in the other 3 indices we trade at LS Trader, namely the Nasdaq 100, Dax and Nikkei 225.

Commodities

The energy collapse continued this week as the energy markets fell to new multi-year lows once again. Crude oil printed a low at $53.94 before rallying on Friday but still ended the week lower. Brent crude dropped below $60 for the first time in over 4 years. Heating oil dropped to its lowest level since July 2009 and no leaded gas to its lowest level since early 2011.

Natural gas dropped below a key support level to fall to its lowest level since January and may fall further to test the 3.000 level over the coming weeks. This week saw an 8.72% drop for gas in what had previously been the strongest energy market in the complex!

As before, these markets continue to be extremely profitable for the LS Trader system and we are, being a trend following system, naturally short all 5 of the above markets and are currently showing huge profits on each trade individually and on the sector as a whole. Profits from these energy trades have had a considerable positive impact on LS Trader’s excellent performance year to date.

Currencies

The currency markets have been extremely active this past week. Weakness was seen early in the week but a strong dollar recover followed which took the dollar index, USD/CHF and USD/CAD to new highs for the current move and saw the Euro break to new lows since August 2012, and the Aussie drop to its lowest level since May 2010, just pips above our long-term 8050 target. Whether there is sufficient dollar strength left to take the dollar to new highs against the remaining currencies remains to be seen. Either way, the long-term trend is definitely still bullish and as we have mentioned several times previously, will remain so for the foreseeable future in spite of the inevitable corrections along the way.

Interest rate futures

Interest rate futures rallied, and in the case of the long bond tested the October high before falling back sharply. The long bond remains the most bullish of the U.S. sector but all markets are currently still in a long-term uptrend and the RSI is also still in the bull range.

Good trading

Phil Seaton

LS Trader

Weekly Update 14 December 2014 – LS Trader

Stocks finally ran out of steam as the S&P 500 failed to print a new all time high and a sharp decline followed. Global stock indices all took at hit as the uptrend is halted, at least for the time being. The dollar also moved lower against the majority of the major currencies whilst commodities, in particular the energy markets, continued their recent collapse, and bonds rallied.

Stocks

As mentioned above, the S&P 500 failed to print new all time highs and a sharp sell-off followed. The RSI collapsed and dropped through the key 40 support level which suggests that the top may be in for now. However, the extent of the collapse and the strong seasonal bullish tendencies as we enter that last couple of weeks of the year would suggest a possible rally to retrace some of last week’s declines. The long-term trend is up and considerable further weakness will be required before that changes.

From last week on the Nasdaq 100 “3 doji patterns have been seen consecutively on the 100’s daily chart, which indicates a loss of upside momentum, and state of almost total indecision in the near-term as the Nasdaq consolidates just below recent multi-year highs.” There were signs that the Nasdaq 100 could have been forming a top as mentioned in last week’s update but until this week there had been no confirming price action. That has now changed and the uptrend is over for now. The Nasdaq has however held up better than the S&P 500 and the RSI is still in the bull range, holding above 40.

The Dax and the Nikkei also sold off as their respective uptrends also came to an end for the time being. For now the long-term uptrends are all still intact for all 4 of the stock indices that we trade at LS Trader.

This week sees the 2-day FOMC meeting begin on Tuesday and also triple witching on Friday.

Commodities

The energy markets have continued their recent sharp sell-off as all 5 of the energy markets that we trade at LS Trader fell to new lows for the current move, which with the exception of natural gas are all new multi-year lows.

The oil markets are now down more than 40% since June and naturally since LS Trader is a trend following system we have caught the majority of the moves, in what has so far delivered the biggest winning trades of the year. In terms of profit, crude oil is the most profitable trade so far this year but Brent crude is the largest winner to date in terms of multiples of initial risk and currently stands at just over 14 to 1 on initial risk. The 4 big winning trades from this sector have so far generated 18,004 points profit and are still going.

The grains markets continue to recover following the collapse that was underway for much of the year to date. Wheat is already nicely on the rise and corn is on the cusp of an upside breakout and a change of trend to up.

Currencies

The dollar ended the week lower against all the majors with the exception of 2 of the commodity based currencies, the Australian and Canadian dollars. The dollar had reached new extremes on Monday against all the majors but then went through a spell of weakness that lasted much of the week. The long-term trends still favour the dollar across the board and it’s really a matter now of whether these corrections continue and if they do how long for before the dollar bull market resumes. The longer-term picture still points towards a higher dollar but as we have mentioned before, there will be some corrections along the way.

Interest rate futures

Interest rate futures rallied throughout the week and the long bond is within range of testing its October high. The RSI moved back above 60 and closed the week at a bullish 74.83, which suggests further strength near term. Whether there is sufficient momentum to take the long bond above the October high remains to be seen. The only negative for the long bond is that sentiment is reaching a bullish extreme at 92% bulls. This does not rule out further gains but does indicate that many bulls are already involved in the move, so we may see a correction before new highs are seen. The long bond is by far the strongest of the longer-term interest rate futures markets followed by the 10-year note. The 5-year not is still range bound. The long-term trend remains up across the sector.

Good trading

Phil Seaton

LS Trader

 

Weekly Update 7 December 2014 – LS Trader

The S&P 500 rose to new all time highs yet again (yawn!), an event that seems to happen every week at least once! Friday’s intraday print at 2079 basis the December 14 e-mini contract is the latest all time high. The dollar is also on the move higher and commodities continue to experience an increase in volatility, which was particularly evident in the metals markets this week. The energy sector continues to collapse and the extended downtrends seen in these markets has been responsible for huge gains for the LS Trader system which is once again at new highs for the year and new highs since the system’s inception on data dating back to 1983.

Stocks

As mentioned above, the S&P 500 rose to new all time highs but the move was unconfirmed by new highs for the Nasdaq 100, which for a change failed to exceed the highs printed during the prior week. 3 doji patterns have been seen consecutively on the 100’s daily chart, which indicates a loss of upside momentum, and state of almost total indecision in the near-term as the Nasdaq consolidates just below recent multi-year highs.

The Dax had a very volatile couple of days as a spike high to new all time highs was seen on Thursday followed by a sharp reversal lower in literally minutes. The Dax then gapped higher at the open on Friday and went on to make a new all time high close, just a few points below the intraday spike high printed Thursday. The fact that bears could not keep downside momentum going on Thursday suggests further strength may be seen during the week ahead.

The Nikkei continues to benefit from yen weakness and this week reached its highest level since October 2007, which correlates to the lows that the yen has printed for the same period. The next level of technical resistance comes in at 18715.

Commodities

One of the most volatile short-term moves in recent times occurred this week in silver, which saw the precious metal drop to new lows for the current move in the early hours on Sunday night. Silver dropped to its lowest level since August 09 before reversing violently higher, leading to a large whipsaw trade. Such moves are pretty rare and often come at key turning points. Although the trend is still down and a reversal is as yet unconfirmed by price action, it is possible that we may have seen the low for this year and may be due a rally that could last a couple of months. However, with the trend remaining down and with the RSI still remaining in the bear range (20-60), the longer-term focus still remains towards lower levels. Time will tell.

Similar price action was also seen in gold, but the yellow metal had not fallen to new lows when the reversal kicked in on Sunday night. The trend for both precious metals, and indeed the entire metals sector is still down.

As mentioned above, the biggest trends are still in the energy sector where the markets continue their long established downtrends and have printed new lows for the current move once again this week. These trends continue to be extremely profitable for the LS Trader system and currently have a huge 13,740 spread betting points in cumulative profits between the 4 markets, which are crude oil, Brent crude, heating oil and no leaded gas.

Currencies

Further dollar strength was confirmed with the Euro falling to new lows for the current move and the dollar index reaching new highs. The Japanese yen continues to collapse and this week fell to its lowest level against the dollar since October 2007. The moves in the currency markets at present are all about the dollar bull market and the Japanese yen bear market. The current dollar run has taken the dollar index to its highest level since March 2009, which is where the current stock market rally began. The fact that the dollar is still rallying with stocks also at new highs shows how strong the dollar is. Many of the currency trends are mature, but so far there is no evidence of these trends coming to an end. There will of course be corrections along the way but the longer-term focus is higher for the dollar.

Interest rate futures

December has begun in mixed fashion for interest rate futures. The rally of the past 2 weeks ran out of steam and a reversal has been seen to take the market back into its sideways consolidation, which has been in effect since the decline from the mid-October high. The trend still remains up across the sector but weakness particularly in the shorter-term interest rate futures is now appearing. All markets are still range bound and none have broken out from their respective consolidations.

Good trading

Phil Seaton

LS Trader