Weekly Update 25 January 2015 – LS Trader

It’s been another excellent week as the markets overall continue with their excellent trending phase, in particular the currency markets where the dollar continues to gain and rise to levels not seen in years. In the case of the Euro, the dollar has pushed it down to its lowest level since 2003 and there is still no evidence of a bottom, even though sentiment is extremely negative towards the Euro, something that often precedes at least a decent bounce higher.

The week ahead could see some volatility in the markets as the Greek election results may impact Monday’s open and have an influence on the currency markets, as well as of course the 2-day FOMC meeting on Tuesday and Wednesday this week.

Stocks

The Dax remains by far the strongest of the stock indices that we trade at LS Trader, and is currently the only one of four indexes where we have a position, long. This week saw a continuation of the rally that began on the 15th January and has now seen the Dax advance some 1128 points in the space of just 7 trading days, less than 2 weeks! Bullish sentiment has risen to 95% and the RSI is up to 72.82, very much in the bull range. There are no signs yet that a top is in in spite of extreme bullish sentiment, so we will continue to ride the trend until evidence to the contrary.

The S&P 500’s rally, that began with a bullish engulfing pattern during the prior week has continued this week, but has not been able to advance sufficiently to test the all time highs at 2088.75 basis the March e-mini contract. The long-term trend is still very much up and the RSI remains in the bull range having bounced off the 40-bull market support level. Whether we see new highs remains to be seen. A move above 60 on the RSI would indicate that we probably would.

Commodities

Gold completed the trend change to up as expected, but has been unable to follow through. The RSI reached a bullish 75.82 on Thursday, the day of the high, but the market dipped back below the $1300 level and closed below it on Friday. The trend is now up and the RSI is in the bull range as it has been since the range shift earlier this month. This all points to higher prices in the longer-term, but price action has not been so convincing since the breakout.

Currencies

It’s been a big week for the dollar, which has seen the dollar rise to multi-year highs against nearly all of the majors. Bullish sentiment on the dollar index has risen to 96%, an extremely high reading, but there is still no evidence of a turn, and the right play is to continue to ride the trends until there is evidence to the contrary.

The dollar has been so strong against the Canadian dollar that the RSI has risen to 90, its highest level in almost 30 years according to my data! Obviously at the time the dollar was much stronger than it is today, but that does go to show how much further room to the upside there could be over the coming years.

The other commodity currencies of Australia and New Zealand have fallen to new lows for the current move, and Euro has fallen to its lowest level since 2003. The Pound also dipped below the $1.50 level, a level not seen since the middle of 2013.

Interest rate futures

Interest rate futures have all struggled this week but it’s interesting to observe that the RSI has bounced from the 60 level in all markets, which keeps the sector very much in the bull range in spite of weakness seen this week, which has been considerable. The long-term trend remains up and the RSI is in the bull range and price support is holding. However, price support levels may be tested this week, especially considering the FOMC meeting, which has the potential to move these markets around, even if after the noise the trend remains as before, which is often the case.

Good trading

Phil Seaton

LS Trader

Weekly Update 18 January 2015 – LS Trader

<p>The story this week has been all about the Swiss Franc and the actions of the SNB, which shocked the markets. This led to an unprecedented move in terms of price and time duration, which was literally 10 minutes.<br />
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That aside, the dollar rose to new highs against several of the majors including reaching new highs for the current move in the dollar index. Stocks have been mixed, as have commodities. Interest rate futures were higher.<br />
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<strong><span style="text-decoration: underline;">Stocks</span></strong><br />
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The Dax was the strongest of the stock indices that we trade at <span style="text-decoration: underline;">LS Trader</span> this week; easily breaking through prior resistance to print a new all time high at 10316 on Friday basis the March contract. This was the culmination of a 2-day rally that began at Thursday&rsquo;s low, where a large rally began that left a very long lower shadow on the daily chart. Ideally we will see the prior resistance level hold and particularly the 10,000 psychological level hold to enable further rally.<br />
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The S&amp;P 500 fell early during the week but appears to have found support on Friday just above medium-term price support and the 40 bull market support level on the RSI. Friday saw a large bullish engulfing pattern print on the daily chart and the uptrend remains intact for now. A breach of 40 on the RSI and a print below the December low may lead to significantly lower levels.<br />
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<strong><span style="text-decoration: underline;">Commodities</span></strong><br />
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The first signs that the energy markets may be bottoming was seen this week with natural gas bouncing sharply higher off the lows on Tuesday with continuation on Wednesday. This large 2-day rally led to us exiting short trades in this market, but we remain short the other 4 markets in the sector, each of which remain very much in downtrends in spite of some strength seen this week.<br />
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Gold rallied this week making a strong move in terms of price and RSI. Thursday&rsquo;s strong rally took the market through R1 and the rally continued on Friday, possibly en route to a change of trend to up in the coming days. As ever, the RSI led the way, breaking through the 60 bear market resistance level on Monday and rising to 71.77 by Friday&rsquo;s close. The RSI is now in the bull range and price needs to follow to confirm a change of trend to up.<br />
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Silver also rallied similarly to gold, but not quite to the same extent. The market closed just below R1 but the RSI has moved above the 60 level, reaching 66. This suggests that the bottom is in for the time being on both of the precious metals and that we may be due for a rally that may last several weeks, possibly months.<br />
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In last week&rsquo;s update we wrote the following on copper: &ldquo;Copper of course is known as a good barometer for the economy, hence its nickname &ldquo;Dr Copper&rdquo;, so a weak copper market does not bode well for the economy, which suggests that global economies are much weaker than most think. There is plenty of room for lower copper prices as structural support is at much lower levels.&rdquo; Copper dropped sharply early in the week, making its lowest print since July 2009 on Wednesday before a decent bounce was seen on Thursday and Friday.<br />
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<strong><span style="text-decoration: underline;">Currencies</span></strong><br />
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The only currency story really was the move in the Swiss franc that basically saw a near 30% move in a matter of minutes following a shock move by the SNB. Incredibly the price action on Thursday had at one stage intraday engulfed all of the price action since August 2011! What happens now in this currency over the next few months remains to be seen. One thing however is clear, the SNB clearly don&rsquo;t want to hold on to their peg and was likely concerned about likely QE in Europe, which may lead to an even weaker Euro. The problem however was due to them putting the peg there in the first place, which was the mistake. Ultimately markets are bigger than central banks, and will end up where they want to go irrespective of central bank interventions, which can only be temporary.<br />
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<strong><span style="text-decoration: underline;">Interest rate futures</span></strong><br />
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From last week on the long bond &ldquo;Due to change of polarity where prior resistance becomes support, this level held (prior resistance) and the market remains very bullish above that level. Indeed if that support level holds, we will likely see further rally to new highs.&rdquo; The support level has held, indeed it was not even tested this week and the 30-year T Bond rallied to new highs as expected, before coming off somewhat on Friday. The trend remains up and that support level remains key.<br />
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Shorter-term interest rate futures were also higher, but all showed some weakness on Friday, returning to the prior breakout level. The 5 Year T-note made the largest reversal and broke below the breakout level, which should have in theory held, so a swift recovery will be required next week or the trend will be under considerable pressure.<br />
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Good trading<br />
<br />
Phil Seaton</p>

Weekly Update 11 January 2015 – LS Trader

Stocks had a very mixed week, beginning with weakness before a decent recovery later in the week. The dollar’s rally continues to new multi-year highs, energy markets dropped to new multi-year lows and the long bond reached its highest level since May 2013.

Several markets have reached extremes in terms of sentiment percentages, with the dollar and long bond reaching the high 90s and several currencies down to single figures. This does not guarantee that reversals are imminent, in fact markets often continue on from these extreme levels as price overtakes sentiment, but does show how far numerous markets have come. At some stage of course things can reach levels where all market participants who want to be involved in a market are, and there is little buying or selling pressure remaining to keep the moves going.

Stocks

As we suggested may happen in last week’s update, weakness seen in the S&P 500 meant that the Santa Claus rally failed to materialize. Based on historical studies, such an even usually precedes a bear market for stocks in the coming year. However, of far greater import is the fact that the long-term trend is still up for all 4 stock indices we trade at LS Trader.

On the S&P 500, weakness was seen on Monday and Tuesday, which took the RSI below the key 40 level for the second time in a month. The breach was only for one day and was only just below 40 at 37.42. However, a move back above 60 will be required for the trend to get back on track. Such a move would suggest a test of the recent all time high and possibly further strength ahead.

Commodities

Crude oil dropped below the $50 level this week basis the March contract, as the long bear market continues. Brent crude has just about held the $50 level but that may be taken out this week. There is still no sign of a bottom in the energy sector as the other 3 energy markets that we trade at LS Trader also remain in severe downtrends. No leaded gas made its lowest print since March 2009, and heating oil its lowest since July of the same year. All 5 trends remain extremely profitable and we remain short and still focused towards lower levels until there is evidence to the contrary.

Gold and silver continue to trade mostly sideways and both remain in long-term downtrends. The trending market from the metals sector remains copper, which this week broke support and reached its lowest level since June 2010. Copper of course is known as a good barometer for the economy, hence its nickname “Dr Copper”, so a weak copper market does not bode well for the economy, which suggests that global economies are much weaker than most think. There is plenty of room for lower copper prices as structural support is at much lower levels.

Currencies

Sentiment on the dollar index rose to 98 on Monday, which is an extremely high bullish reading, but still further rally was seen through to Thursday, where the index made its highest print since November 2005, basis the cash index.

Both the Euro and Pound dropped to new lows for the current move and the dollar pushed to new multi-year highs against the Swiss franc and the Canadian dollar. Things are about as bullish now for the market as they can get and a correction, or at a minimum a period of consolidation would not be a surprise, but with the trends as established as they are, continuations of the current trends cannot be ruled out either. As we’ve said many times before, it would take a brave man to jump in front of the dollar trend at present.

Interest rate futures

From last week: “As before, the 30 year T-bond is the strongest market in the sector and we may see another pop at new highs in the coming days. Significant resistance can be expected at the double top, but a breakout could lead to heavy short covering and further rally.” We did see the breakout and further rally before a two-day sell-off mid-week which took the market back to the prior resistance level from the October high. Due to change of polarity where prior support becomes resistance, this level held and the market remains very bullish above that level. Indeed if that support level holds, we will likely see further rally to new highs.

Good trading

Phil Seaton

LS Trader

Weekly Update 4 January 2015 – LS Trader

2014 has ended and it was an excellent year for the LS Trader system, easily the best year since 2008. Trending markets returned in force in 2014, particularly in the second half. Strong trends have been seen in several sectors, particularly in the energy markets and the currencies. These two sectors were responsible for a large percentage of the system’s outstanding annual return. The New Year, although only one day old is off to a good start as well with further weakness in energies and a continuation of the dollar rally.

As 2015 begins the long-term trends are as they have been for much of 2014, up for stocks, the dollar and interest rate futures, and down for most commodities. The year ahead promises to be a very interesting one and one which will likely be very profitable as the trending phase that began in 2014 should have much further to run and possibly one that will deliver a bigger move than the 46% decline seen in crude oil.

Stocks

Weakness in the S&P over the last 2 trading days of last year and the first of this has erased the market’s progress for December and barring a large rally tomorrow will indicate a failure for the Santa Claus rally, which as we have mentioned typically runs for the last 5 trading days of the old year, through to the first 2 trading days of the New Year, which this year ends on Monday the 5th.

Historical seasonal tendencies are far from 100% reliable and not something that trading decisions should be based on solely, but they do offer repeating patterns fairly often and are something of interest and to be aware of. The records show that when the Santa rally fails to materialise, the following year is often a bear market. In effect, we’ll need to see new all time highs printed on Monday in the S&P 500, which will be a considerable rally, which at this stage looks unlikely, or the Santa rally will have failed.

Commodities

The big story in the commodities markets continues to be the huge energy bear market, which has begun 2015 in the same way that 2014 ended, with weakness. Crude oil shed some 46% last year and the selling may not yet be done. The long-tern trend remains down across the energy sector and in spite of extreme negative sentiment towards the energy markets, the extent of the decline and the markets in classically oversold levels, it would take a brave (and foolish) man to be a buyer here. Trying to catch a falling knife in a huge bear market is usually a fast way to the poor house.

Even if we have seen the bottom in the energy markets (the odds favour that the bottom is not yet in) trading with the trend has by far been the best strategy for trading these energy markets, as of course it is in all markets.

Currencies

From last week: “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 dollar rally has continued in full force, ending 2014 with strength and beginning 2015 with a strong rally. Sentiment on the dollar index has risen to 96, which is a degree of bullishness not seen since 2010.

The inverse of the dollar index is the Euro, which this week has continued to fall. Bullish sentiment here has dropped to low single figures. In neither case do these sentiment figures guarantee a reversal but they do represent considerable sentiment extremes and levels that are not that often reached.

Weakness seen in the Euro was also seen in the Pound, which dropped like a stone through support on Friday, shedding over two and a half big figures in the process.

Interest rate futures

Interest rate futures were higher this week and the RSI bounced notably right off bull market support at 40 in the 5 year T note as we suggested may happen in prior updates. The long-term uptrend remains intact as the New Year gets under way. As before, the 30 year T-bond is the strongest market in the sector and we may see another pop at new highs in the coming days. Significant resistance can be expected at the double top, but a breakout could lead to heavy short covering and further rally.

Good trading

Phil Seaton

LS Trader