Weekly Update 26 April 2015 – LS Trader

The past week has seen stocks complete their recovery, and the S&P reach new all time highs. The Nasdaq 100 also broke out to multi-year highs. The dollar has been weaker but remains in a long-term uptrend. Interest rate futures and commodities have been mixed, but the long-term trend is still up for rates, and down almost across the board for commodities. However, as we cover in the commodities section below, there are a couple of markets within the range of a change of trend to up.

Stocks

From last week on stocks “In spite of the weakness seen in global stocks this week, it should be noted that the long-term trends are all still up, and further price action to the downside through longer-term support levels will be required for that to change. It is therefore at this moment in time premature to rule out a further rally and new highs. This view is further bolstered by the fact that the price action since late February has been sideways, and choppy, typical characteristics of a correction and a pause before the prior trend resumes. Only price action can confirm a change of trend, so until we see a break of major support, the focus remains to the upside.”

This view still appears to be on track as both the S&P 500 and Nasdaq 100 broke out of their ranges, which in the case of the S&P 500 was a new all-time high, and the Nasdaq 100 was a high since the 2000 top. The Nasdaq Composite, which is not an index that we trade at LS Trader, rallied to new all-time highs, exceeding the peak printed at the end of the tech bubble back in 2000, in a move not yet confirmed by the 100. In terms of futures prices, the Nasdaq 100’s high back March 2000 was 4884, still some 350 odd points above last week’s high.

The Nasdaq 100’s rally took the RSI clearly through 60 this week, reaching 66.97, suggesting that further rally is ahead. The S&P 500 also moved above 60, but only just, reaching 60.51 on Friday. The odds favour that we will see continued strength during the next few days at least.

Commodities

The energy markets have shown continued strength this week with both heating oil and no leaded gas rallying sufficiently to get within range of a change of trend to up for the first time since June last year. The crude markets are still a way off of a change of trend to up. Natural gas, by far the weakest in the sector at present, remains near its recent lows.

Both gold and silver have been weak over the past few days and may both be set for a test of their recent lows. Silver is the weakest, still in a long-term downtrend, and this week seeing the RSI move back below 40, which suggests that the March lows will be tested, and probably broken.

Corn broke sharply lower this week, breaking through a key shelf of support that turned the long-term trend back to down. This break of support and trend change, which was confirmed by the RSI falling through bull market support at 40, suggests further decline over the coming weeks towards the 2014 low around 345.

Currencies

The dollar index ended the week lower and is now testing that zone of support that we mentioned last week. Additionally, the RSI has fallen to 42.87. Bull market support comes in at 40, so if that level is decisively broken, we may see prices fall further to test the next level of major structural support. A change of trend to down for the index is however currently out of range, and I doubt if we’ll see sufficient weakness for that level to be reached before the multi-year bull market resumes.

That said, there are a handful of currencies that are coming within range of testing trend-defining levels. Whether we see sufficient dollar weakness for any of the trends to change remains to be seen.

Interest rate futures

Interest rate futures have been mixed this week, but the long-term trend is still up across the sector. Prices fell mid-week to test support, but support was found, and some strength returned to close the week out. The recent lows are, therefore, key support, and the focus remains higher as long as those levels hold. The 30-year bond is the weakest in the sector at present, but all markets remain above 40 on the RSI at present. The shorter-term markets, the 3-month Eurodollar and the 5-year T-notes remain the leaders in the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 April 2015 – LS Trader

The past week has seen stock markets sell-off, the particular weakness being seen in U.S. stocks on Friday. Interest rate futures have risen once more, and may go on to test their recent highs again, and the dollar has been weaker, highlighted by a four-day decline in the dollar index to end the week. The long-term trends all remain intact as before and are still up for stocks, interest rate futures and the dollar. Commodities remain for the most part in long-term downtrends. Until there is price action to the contrary, we expect the prevailing long-term trends to remain in effect once this short-term consolidation period ends.

Stocks

Global equities were weaker over the past week and this weakness even spread to the strongest of the indices we trade at LS Trader, the German Dax. The Dax this week failed by 3 points to make new all time highs and turned over, before accelerating lower on Friday. This led to a move through short-term support and resulted in the system exiting the trade. It was, however, a highly profitable trade, and we only gave back a pretty small amount of profit in the process. The trade was originally entered long back on the 16th January, at a level of 10159 and exited at 11865, for a profit of some 1706 points, an excellent move.

Last week we suggested that 60 was the key level on the S&P’s RSI and that if the RSI broke above 60 it would argue for new all time highs. The 60 level held, with a high for the week at 58.86, which kept the RSI in the bear range, and the market subsequently turned over. It was a similar story in the Nasdaq 100, where the RSI also failed to reach the 60 level.

However, in spite of the weakness seen in global stocks this week, it should be noted that the long-term trends are all still up, and further price action to the downside through longer-term support levels will be required for that to change. It is therefore at this moment in time premature to rule out a further rally and new highs. This view is further bolstered by the fact that the price action since late February has been sideways, and choppy, typical characteristics of a correction and a pause before the prior trend resumes. Only price action can confirm a change of trend, so until we see a break of major support, the focus remains to the upside.

Commodities

Energy markets have been strong this week, but remain in long-term downtrends. However, the RSI on crude oil has this week broken through bear market resistance at the 60 level for the first time since June last year. The market has though, been in a sideways range since the beginning of the year, with this range spanning from the lows around $45 to last week’s high. It is possible that this is a basing pattern and that we may see further strength from here, but it will take considerable further strength to change the long-term trend to up, and at this stage we don’t see that happening. It is more likely that recent strength is a corrective rally in a larger downtrend.

Natural gas remains the weakest market in the sector, but may be due another test of resistance in the coming days. Here the RSI remains in the bear range, and even last week’s rally was unable to take the RSI much above 50. Should resistance hold, we can still look for new lows in this market.

Currencies

The dollar index began the week moving higher to reach its highest level in almost a month, before moving lower and selling off for four straight days. There is short-term support for the index around 96, and a further support zone around the 94-95 level. There are, therefore, plenty of areas to support the long-term uptrend and to form a platform for further strength. The RSI, which often moves ahead of price, remains in the bull range, which we define as between 80 and 40. It will be interesting to see if the bull market support area on the RSI at 40 holds this week.

Interest rate futures

The long-term uptrend in the interest rate futures sector remains intact, with a sharp reversal higher seen early in the week, which saw the 5-year T-note narrowly hold on to support. A 5-day rally followed, which took the note back to within a few points of its recent high. Similar price action was seen in the 10-year note and the 30-year bond, but the latter was a little weaker in its rally until a strong move was seen on Friday. If we see further stock index weakness, the interest rate futures sector may benefit sufficiently to see new highs.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 April 2015 – LS Trader

The long-term trends still for the most part remain intact. The dollar bull market is still alive, and new breakouts for the dollar index and Euro could be seen this week. The British pound has this week fallen to a near 5 year low against the dollar and may yet have further to run. U.S. stocks have rallied this week and are back within range of their recent highs, but continue to lag other global indexes, of which the Dax is still the leader. Commodities remain mixed, but for the most part remain in long-term downtrends, as they have for quite a long time now.

Stocks

U.S. stocks rallied this week after the S&P 500 continues to find support at the key level around 2030. The RSI is continues to hold above 40. We wrote last week; “The long-term trend remains up and the focus will remain on higher prices as long as those two levels hold.” Both of those levels did hold and the RSI rose to 57.96, therefore remaining in the bull range. A move above 60 on the RSI would suggest that a test of all time highs would once again be on the cards. Should that happen, a breakout for the Nasdaq 100 might not be too far away either.

We wrote last week that April is a strong month on a seasonal basis, and in fact April is the best month for the Dow, dating back to 1950. It is also the second strongest month of the year for the S&P 500 and the fourth best for the Nasdaq 100 dating back to 1971.

The Nikkei rallied to new highs, finally reaching and exceeding the 20,000 level that we have been writing about for the past few weeks. This new breakout led to the LS Trader system going long the Japanese index, to add to our existing long position in the still bullish German Dax. Last week we wrote that with the RSI at 59.67 on the Dax, that the market remained bullish. This is still the case this week, and the RSI is now higher still at 68.95 in spite of a lower close on Friday.

Commodities

Weakness in the grains markets is ongoing. Soybeans this week turned down right at resistance and continued down to its lowest level this year. Soybean meal was also bearish, breaking below a key shelf of support that has held since October last year. This move, which was a trend-changing breakout, opens the door to potentially further declines, possibly as low as the 265 handle. The move to the downside was confirmed by a shift to the bear range on the RSI, with a move below 40. Some of the other grains markets may follow suit this week.

Natural gas, which is currently the weakest of the energy markets, broke to new lows for the current move, and now stands at its lowest level since mid-2012, with further downside potential ahead.

Currencies

We’ve been writing in recent weeks that the long-term dollar bull market was still intact and that recent weakness was just a corrective move in a larger uptrend. We said that we would be maintaining that view as long as the RSI held above 40 on the dollar index and for as long as the long-term uptrend remained up according to our proprietary indicators. Both continue to hold, so we remain bullish on the dollar until we see sufficient price evidence to the contrary.

It is possible that we will see a breakout to new highs for the dollar index this week, as well as new lows for the Euro. It’s worth noting that even with the recent Euro rally, the RSI has been unable to cross the 60 level, a level which it has remained beneath since May last year, such is the extent of recent weakness. The converse is true for the dollar index, where we have seen the RSI remain above 40 since July last year (the dollar index is a near perfect inversion of the Euro).

This past week has seen the British pound fall to new lows for the current move, which is also almost a new 5-year low for the Pound. Some of the other major currencies are also within range of resuming their long-term downtrends against the dollar.

Interest rate futures

In last week’s update we wrote that further gains for this sector would be dependent on the 10-year T note and 30-year T bond breaking to new highs, and said that there would be strong resistance at the prior highs. This turned out to be correct as these two markets were unable to breakout to new highs and instead turned lower, dragging the 5-year Note down with them.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 April 2015 – LS Trader

The past week was a shortened trading week due to the Good Friday holiday. Monday is a Bank Holiday in the UK, but U.S. markets will be open.

There are several markets that are at or near what may turn out to be very key levels. Whether these markets can break through the relevant support or resistance levels remains to be seen. For now the long-term trends remain unchanged and continue to favour the dollar, stocks and interest rate futures, all of which are still in long-term uptrends. The commodities markets remain mostly in long-term downtrends, as they have for much of the past year or so.

Stocks

The S&P 500 continues to hold at a key support level around 2030. The RSI is also holding above 40 even though that level has been tested a few times recently. The long-term trend remains up and the focus will remain on higher prices as long as those two levels hold. However, a break of either of both would suggest further weakness towards critical trend defining support at the December low.

On a seasonal basis, April is a strong month, and in fact April is the best month for the Dow, dating back to 1950. There may therefore be seasonal support for U.S. stocks for this month before we enter the period of ‘sell in May and go away’. It should however be noted that seasonality is not a reliable indicator, and is only a tendency. Seasonality should never be used in isolation without another trigger.

The Dax remains as the sole long stock index position that we have open at LS Trader. For a second consecutive week, new all time highs were not seen, but support from the prior week’s low did hold. The long-term trend is clearly still up, and with the RSI at 59.67, the market remains bullish. However, should other global indexes roll over, which is a possibility, such moves would weigh on the Dax.

Commodities

The trend remains down for Crude Oil, and we continue to look lower and for a test of the $44.03 low seen a couple of weeks back. The February 2009 low at $33.55 basis the continuous contract remains a good target. It will take a decisive move above 60 on the RSI to put that into question. Interestingly the RSI has remained below 60 since the end of June. At that time the price of crude was still north of $100.

Commodities for the most part continue to consolidate as the markets digest the recent large moves. There are very few markets making anything other than corrective moves in this sector at present. However, once the corrective phase is over, the long-term downtrend in many markets should resume

Sugar, which has been one of the best trending markets for the past few weeks, fell to its lowest level since July 2010 this week before putting in a decent 2-day rally. We will likely see resistance tested in the coming days.

Currencies

The long-term trend continues to favour the dollar in spite of further weakness this week in the dollar index. However, the RSI is heading down for a test of bull market support on the RSI. You have to go back to early July 2014 for the last time the dollar index was below 40 on the RSI, so a move below that level may indicate further weakness ahead. However, considerable further decline would still be required for a change of trend.

The Australian dollar broke to new lows for the current move briefly this past week, falling to its lowest level in almost 5 years. If the market can move back below last week’s low, there is plenty of room for further weakness, as the next level of structural support is some 400 pips lower. Whether we see such a move will to a very large extent depend on whether the dollar resumes its long-term uptrend against the other majors.

Interest rate futures

Interest rate futures rallied this week, and the 5 year T note broke above resistance to post a new high for the year on Friday. This move happened with a clear break above 60 on the RSI, so further strength may yet be seen. That however may be dependent on the 10 year note and long bond catching up and also breaking to new highs. The long bond came within a few points of its high for the year before pulling back. There will undoubtedly be resistance at this level. As before, much of what happens in this sector will be dependent on what happens to U.S. stocks over the coming days and weeks.

Good trading

Phil Seaton

LS Trader