Weekly Update 29 March 2015 – LS Trader

The past week has seen U.S. stocks display considerable weakness and the dollar continue to consolidate. Still no change in the long-term trends for stocks or the dollar, both of which remain up. The long-term trend for interest rate futures also remains up, and commodities remain mixed.

Stocks

The S&P 500 failed at prior resistance and dropped like a stone through to Thursday’s low before mounting a minor recovery. The long-term trend is however still up, and the RSI remains in the bull range. The 40 level on the RSI could be key, as could an RSI print below 38.64 and a price move below 2030.50. If those key levels are taken out, a move back to test support at the December low could be ahead.

Having been higher for 10 straight weeks, the Dax finally failed to make a new all time high and had a down week. The trend however remains up and the RSI is also in the bull range. No sign of either changing at present.

The Nikkei printed new highs for the current move this week but also ended lower. As with the Dax, both the trend and RSI remain bullish. However, a move below last week’s low would indicate further weakness near term

Commodities

Gold’s recent rally stalled on Thursday. Perhaps crucially the RSI tested and failed to move above 60. If it had that would have put the RSI back into the bull range for the first time since January. Gold is now roughly in the middle of a larger trading range.

Silver has been stronger than gold and this week saw the RSI remain above 60, confirming that it was now in the bull range. This suggests higher prices in the short-term, but price action will have to fight against the long-term trend, which remains down.

Crude oil rallied through to Thursday’s high, moving above short-term resistance in the process, before turning lower on Friday. Again here, the RSI has been unable to move above, or even reach 60, and the long-term trend remains down. COT data continues to show large speculators holding a near record net long position, which would normally coincide with a market top. The fact that this position is present with a market in a long-term bear market and near the lows shows that many fund managers have been trying to catch a falling knife and have been buying a falling market. The prospect of forced liquidation remains, which would lead to considerably lower prices levels, potentially well below the $44 low seen a couple of weeks back. The February 2009 low at $33.55 basis the continuous contract remains a good target.

Currencies

The big question in the currency markets is ‘has the dollar topped?’ So far the answer is ‘no’ based on a number of factors. The current chart structure is consistent with a correction, but the long-term trend remains up and the RSI is still in the bull range. This suggests that new highs may yet be seen, but a move below 94 concurrent with a break below 40 on the RSI would put that into question.

Short the British Pound remains our current sole currency position. Cable remains weak and finished lower this week. The long-term trend is down and the RSI is in the bear range. A move below the recent low still looks a possibility.

Interest rate futures

Interest rate futures remain in a long-term uptrend across the board. The RSI remains in the bull range, but momentum is waning. It’s impossible to say yet whether we will see a breakout to new highs in this sector. Much will depend on what happens to U.S. stocks over the coming days and weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update – 22 March 2015 – LS Trader

It’s been a wild few days in the currency markets, which have seen large swings following comments from the Fed about a delay in interest rate rises. However, a correction in the dollar’s huge bull run was already overdue since sentiment had reached historical extremes, and the bull market was already mature, so the comments were more likely a catalyst than a cause of the move. If the correction continues, a weaker dollar may benefit U.S. stocks, and new all time highs for the S&P 500 could be seen this week. A weaker dollar would also benefit commodities.

Stocks

Support from the RSI held and the S&P 500 continued to recover recent losses and now looks set to test and likely break through resistance, and post new all time highs once again. As mentioned above, a period of dollar weakness may benefit stocks due to their normal inverse correlation. The inverse correlation is not 100%, and there have been periods where stocks and the dollar are correlated and move together, however the more normal price action is closer to inverse correlation.

The Dax rolled this week to the June contract, and posted new all time highs early in the week, and closed within range of new highs on Friday. The Dax remains bullish, as do all global stocks at present and new highs can be expected again. Following the reversal in the currency markets and our exit of our Euro and dollar index trades, the Dax is now our most profitable trade from our current open positions.

From last week on the Nikkei: “19,505, which was the Nikkei’s high back in July 2007 basis the continuous contract, is the next target. Should that level be cleared, sights would be set on round number resistance at 20,000.” The Nikkei cleared the 19,505 target that we mentioned last week, and now looks set to rally further to test 20,000 in the coming days and weeks.

Commodities

We wrote last week that price action in gold and silver would be dependent as to whether gold broke its November low. It did not. This, along with comments from the Fed that interest rate rises may not be as imminent as expected sent the dollar sharply lower. A weaker dollar is generally good for commodities and in particular gold and silver. Both precious metals rallied and may continue to rise if further dollar weakness takes hold. The long-term trend for gold is still up, since the aforementioned critical support level held, and further strength may see a change of trend to up for silver in the weeks ahead.

From last week “the strong rally seen in crude was not sufficient to break 60 and take crude out of the bear range. This suggests that now lows will be seen.” New lows were seen in crude as expected, as crude dropped below the late January low. A moderate bounce has since been seen, but the trend remains down.

Currencies

From last week: “Although there is no question that sentiment for the dollar and against the Euro is at historical extremes, the same has been true for the past couple of months, but no reversal has been seen. A turn in both markets is clearly due…we will exit on evidence of a reversal”.

The evidence required for an exit was delivered this week as the dollar fell sharply across the board, bringing to an end, at least for now, the dollar rally. The longer-term focus is still very much dollar bullish, but a period of weeks or even a few months of dollar weakness, correcting some of the recent larger rally, may be due. In fact, the recent rally in the dollar index was 27%, which in terms of percentage gains, is the second largest in the dollar’s history. In spite of the reversal, the LS Trader system banked huge profits from the short Euro and long dollar index trades, which amounted to 1857 pips from the two trades combined.

Interest rate futures

From last week on interest rate futures: “This Tuesday’s COT report indicates that it is small traders that are short, while commercial hedgers remain long. This shows that the short side of the interest rate futures markets is in weak hands and that we may see further rally. Whether that rally is sufficient to retest the recent highs remains to be seen. The first indication of that will be a move back above 60 on the RSI.”

Interest rate futures rallied, and the RSI broke through the 60 level as expected. Further strength may be seen. As before, whether there is enough left in these markets to test the late January highs remains to be seen. The long-term trends remain up across the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 15 March 2015 – LS Trader

It’s been another excellent week for the LS Trader system, which has seen the system reach new all time equity highs, exceeding the previous high printed in late January. These gains came largely on the back of the continued dollar rally, the Euro’s continued collapse, and a strong recovery rally to new all time highs in the Dax. At the time of writing, the LS Trader system remains long the dollar against most of the majors, including being short the Euro, as well as long the Dax.

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

Stocks

From last week: “Although considerable further weakness will be required for a change of trend to down, a break of 40 on the RSI would be a clear indication that the top may be in.” The RSI on the S&P 500 dropped to test 40 and briefly went below it, but not sufficiently to conclude that the range was now bearish. That level may however be tested again this week and a decisive break of it may indicate lower prices ahead. However, the long-term trend for now is still up.

The Dax was the strongest of the indices that we trade at LS Trader and recovered from recent short-term weakness with a large rally back to new all time highs. The long Dax trade that the LS Trader system currently has open is the third most profitable trade from current open positions.

It’s the non-U.S. markets that continue to hold up better, as in addition to the Dax’s rally, the Nikkei also rallied from just above support and went on to post new highs for the current move. 19,505, which was the Nikkei’s high back in July 2007 basis the continuous contract, is the next target. Should that level be cleared, sights would be set on round number resistance at 20,000.

Commodities

From last week: “Gold and silver have both fallen hard this week and we may be on the verge of the resumption of the long-term downtrend in silver. This RSI dropped below 40 and thereby moved into the bear range, and price confirmation could follow this week.” Further weakness was seen this week in the precious metals, as silver resumed the downtrend as anticipated. The RSI is now firmly established in the bear range, so lower levels could be ahead. Much of this may depend as to whether gold will fall below its November low and continue lower.

Crude oil remains the weakest of the energy markets and the rally from the late January low has been almost completely retraced, and we may see a test of the January low basis the continuous contract in the coming days. As we mentioned in previous weeks, the strong rally seen in crude was not sufficient to break 60 and take crude out of the bear range. This suggests that now lows will be seen.

Currencies

From last week: “The dollar is advancing across the board and is in range of new breakouts in several of the other currency contracts.” The dollar did breakout against a few more of the major currencies this week as the dollar rally continues. This led to the dollar index moving above 100 for the first time since 2003. This has resulted in the LS Trader system generating some 1030 pips profit from the current long dollar index trade. However, that pip tally is superseded by the 1779 pips profit from the current short Euro trade. This past week saw quarterly currency expiration as the March contract expired and rolled to June. The rolls banked huge profits for the LS Trader system from our short Euro and long dollar index positions.

Although there is no question that sentiment for the dollar and against the Euro is at historical extremes, the same has been true for the past couple of months, but no reversal has been seen. A turn in both markets is clearly due, but who is to say that the current moves cannot continue further? We will exit on evidence of a reversal, and as yet there is no such evidence.

Interest rate futures

Interest rate futures rallied this week, keeping the long-term uptrend intact. Although the RSI has fallen recently into the bear range, price never fell sufficiently to give a change of trend to down. This Tuesday’s COT report indicates that it is small traders that are short, while commercial hedgers remain long. This shows that the short side of the interest rate futures markets is in weak hands and that we may see further rally. Whether that rally is sufficient to retest the recent highs remains to be seen. The first indication of that will be a move back above 60 on the RSI.

Good trading

Phil Seaton

LS Trader

Weekly Update 8 March 2015 – LS Trader

It’s been an interesting and profitable week in the markets. The Nasdaq 100 rose to new highs on Monday (unconfirmed by the S&P 500) but then unraveled as the week went on, and the dollar soared as we suggested may happen in last week’s update. From last week: “There have been gains in the dollar index and a test of the recent high may be at hand, as well as a test of the major recent lows in the Euro. Trading for the most part remains relatively quiet but there are signs that several moves are building up ahead of a breakout. Potentially large moves could lie ahead in various markets.”

Several large moves have come to pass already, with big moves being seen in the currency markets and interest rate futures. It looks likely that there will be numerous excellent trading opportunities over the coming months that will carry on the recent excellent run that began last year and is still ongoing. The LS Trader system has this week seen system equity move back to within touching distance of all time equity highs last seen in the last week of January.

Stocks

From last week: “The S&P 500 also printed new all time highs but no follow through has been seen and the market closed marginally lower for the week. We can look for the area around the late December 2014 highs to provide support, as prior resistance becomes support, but should that support fail to hold, lower prices may be ahead”.

The S&P 500 failed to print new all time highs this week, giving a bearish non-confirmation of the Nasdaq’s new high print for the current move, and the failure led to a sell-off which perhaps critically took the market back below the prior highs, which as we noted in recent updates, should have provided support if the trend was good. Weakness then extended further to breach structural support and the RSI has fallen sharply to 46.68 and looks to be en route for a test of bull market support at 40. Although considerable further weakness will be required for a change of trend to down, a break of 40 on the RSI would be a clear indication that the top may be in.

Having exited the S&P 500 this week, we still remain long the other 3 indices that we trade at LS Trader, with the Dax still by far the strongest, making a new all time high close on Friday. The Nikkei also reached its highest level for the current move

Commodities

It’s not just stocks, currencies and interest rates that have been making moves; decent moves are also being seen in various commodities markets. Gold and silver have both fallen hard this week and we may be on the verge of the resumption of the long-term downtrend in silver. This RSI dropped below 40 and thereby moved into the bear range, and price confirmation could follow this week. Gold fell harder, but still narrowly remains in a long-term uptrend. That could change this week as the November lows are very much within range.

Currencies

From last week: “The dollar index broke out of the triangle and as we suggested last week, such a move would be bullish and would suggest that the rally was not complete and that new highs were ahead. The move has so far taken the index to within 50 pips of its January high and that level may be tested this week. The Euro, which is a near-perfect inversion of the index declined this week and may also drop to new lows below its January low.” Both the dollar index and Euro made thrusts from the triangle and both went on to reach new highs in the case of the index, and new lows in the case of the Euro, which were the lowest lows seen since September 2003.

The dollar is advancing across the board and is in range of new breakouts in several of the other currency contracts. This week also sees quarterly currency expiration as the March contract expires and rolls to June.

Interest rate futures

Interest rate futures have fallen hard this week and a change of long-term trend to down is in range for the entire U.S. interest rate futures sector. Both short and long-term markets have come under price pressure from heavy selling and the RSI is in the bear range for all markets, which is often a precursor to a change of trend to down.

Good trading

Phil Seaton

LS Trader

Weekly Update 2 March 2015 – LS Trader

New all time highs were seen this week in both the S&P 500 and the Dax, but the latter remains the stronger of the two. The dollar continues to consolidate but there have been gains in the dollar index and a test of the recent high may be at hand, as well as a test of the major recent lows in the Euro. Trading for the most part remains relatively quiet but there are signs that several moves are building up ahead of a breakout. Potentially large moves could lie ahead in various markets.

The long-term trends remain as they have for quite some time and are still up for stocks (the LS Trader system remains long all 4 stock indices that we trade) up for the dollar (we have very profitable open trades in the Euro and the dollar index), up for interest rate futures and down for commodities. The commodities markets are also currently providing a handful of excellent open trades to the short side, but there are signs that some commodities markets may be bottoming out and forming basing patterns ahead of potentially large bounces in the weeks and months ahead.

Stocks

The Dax continues to be the strongest of the 4 stock indices that we trade at LS Trader and this week posted new all time highs and also made a new all time high close. The RSI is at a very bullish 76.86 and sentiment remains extremely elevated, at 95% bulls. Although such bullish extremes are often seen at or near the end of moves, sentiment was also at 95% a month ago, but the Dax has rallied an additional 600 points since then. Elevated sentiment in and of itself is not a reason to bail out of a strong trend.

The S&P 500 also printed new all time highs but no follow through has been seen and the market closed marginally lower for the week. We can look for the area around the late December 2014 highs to provide support, as prior resistance becomes support, but should that support fail to hold, lower prices may be ahead, but it would take significantly lower prices to put much of a dent in the long-term uptrend.

Last week we suggested that a test of the all time high at 4884 for the Nasdaq 100 was beginning to look like a real possibility, and that remains the case. Whether it happens in the current move remains to be seen. This week has seen new highs posted for the current move but also a loss of momentum. Whether there is enough left in this market for the remaining 400+ points required to complete the recovery from the March 2000 all time high remains to be seen, but for now the trend is unquestionably up and bullish.

Commodities

During the past week we exited a very profitable short lean hogs trade that banked an excellent 2002 points profit in just under 3 months since our original entry on the 5th December. Hogs rallied sufficiently to break above resistance, but the long-term trend still remains bearish and the RSI is also in the bear range, so another move back to new lows cannot yet be ruled out.

Coffee is another excellent short trade and one that is still open. Here too we have over 2000 points profit on the open position as the coffee market has fallen to its lowest level in just over a year. Sentiment however is extremely bearish at just 3% bulls, which is the lowest level in 12 years. That does not guarantee a bounce but does suggest that the market is overextended in the short-term.

Currencies

The dollar index broke out of the triangle and as we suggested last week, such a move would be bullish and would suggest that the rally was not complete and that new highs were ahead. The move has so far taken the index to within 50 pips of its January high and that level may be tested this week.

The Euro, which is a near-perfect inversion of the index declined this week and may also drop to new lows below its January low.

Interest rate futures

Interest rate futures rallied somewhat this week and corrected some of the recent decline, which in terms of the 30 year T bond was just over 50% of the decline from the January 30th high. The long-term trend is still up for the sector but as we covered last week, the RSI had moved down into the bear range. A decisive move back above 60 on the RSI would change that, but whether these markets can recover back to new highs remains to be seen.

Good trading

Phil Seaton

LS Trader