Weekly Update 31st May 2015 – LS Trader

The dollar has continued its recovery following the recent correction, but the rally against most markets has not been quite as emphatic as was seen during the previous week. The dollar did, however, rally to its highest level against the Yen since 2002 and reached a five-year high against the New Zealand dollar. The Nikkei continues to benefit from the weak Yen, and this week printed a new 15-year high. For a change, the S&P 500 did not print a new all-time high this week.

Stocks

As mentioned above, the S&P 500 failed to print a new all-time high this week. It also failed to clear the 60 level on the RSI, which is the bear market resistance range. A break above 60 would suggest further rally to new all-time highs. But continued failure may lead to further weakness.

The Nasdaq 100, which has lagged the S&P 500 in recent weeks, came very close to breaking out to new multi-year highs, but failed to break through resistance from the 27th April high. Here too we have seen a few stabs at the 60 level on the RSI but no decisive breakthrough. The RSI closed the week at 55.51. It is possible that both of these markets will breakout to new highs this coming week, but support is also close to current price levels.

We wrote last week that having made a new 15-year high, the Nikkei had further room to the upside and my possibly rally another 1500 points from last week’s close. It rallied 305 points at one stage during this past week but gave back most of the gains. A weak Yen is good for the Nikkei, so these markets are likely to move together. With the Yen dropping to its lowest level since 2002 against the dollar this week, additional weakness should it appear, would likely benefit the Nikkei.

Commodities

Coffee dropped to its lowest level since January 2014 as soft commodities and grains markets continue to remain under pressure. Soybeans and corn also traded at their lowest level since October last year and other grains markets also remain weak. Rough rice has fallen to its lowest level this month since 2006. It’s possible that we will see additional weakness in these markets over the coming days and weeks.

Gold and silver remain in directionless trade, as the consolidation pattern that has lasted for months continues. Copper, on the other hand, is starting to look very weak since the failure to break above 296. This week has seen the RSI drop below 40, which indicates further weakness ahead. This weakness may continue lower over the next few weeks towards the continuous contract low currently at 241.90.

The energy markets also remain mixed. Currently only heating oil and no leaded gas have completed trend changes to up. Brent Crude, Light Crude and Natural Gas all remain in long-term downtrends. Of these, both Crude markets are within range of testing key resistance. Natural gas remains the weakest in the complex, and we could see a test of the key April low this week.

Currencies

The dollar index rallied early in the week but was unable to push higher. The RSI did poke above 60, but not in the decisive fashion that would be required to suggest that a rally back to the March highs was imminent, although that is where we expect the dollar will eventually end up.

The big currency moves came in the New Zealand dollar and the Yen, as mentioned above. The kiwi dropped to its lowest level since 2010 this week, having declined some 240 pips. The Yen shed a similar amount. Both markets could have further to run.

Interest rate futures

The 30-year T-bond continued its recent rally and broke through short-term resistance in the process. As mentioned previously, the long bond was the first market in this sector to confirm a change of trend to down. The other markets in the sector all remain in long-term uptrends.

The 3-month Eurodollar looks set to test its recent high this week. This market has rallied from support, and the RSI remains in the bull-range. We could see a breakout to new highs in the coming days.

Good trading

Phil Seaton

LS Trader

Weekly Update 24 May 2015 – LS Trader

The markets are closed on Monday due to the Bank Holiday in the U.K. and the Memorial Day holiday in the U.S. The week ahead will, therefore, be a shortened trading week.

The past week has seen new all-time highs for the S&P 500 once again, as well as a new 15-year high for the Nikkei. It has also seen a considerable rally for the dollar, which may be sufficient to suggest that the recent dollar correction is at an end and that we may be in the early stages of the next leg higher.

Stocks

The Nikkei rallied to its highest level in 15 years. The breakout was confirmed by a move back above 60 on the RSI, which is bullish, as is the fact that the market closed above the prior resistance level, which should now act as support. There is plenty of room for a further rally in this market, with the next resistance level some 1500 points above current levels.

The S&P 500 registered yet another all-time high, but as before the advance following the new high has been far from convincing. The rally has not been confirmed by a break above 60 on the RSI, or by a breakout to new multi-year highs by the Nasdaq 100, which still lags below its recent high. However, it’s possible that both of those could change this week and that we could see a further rally.

Commodities

Commodities markets have been mostly weak over the past few trading days, with some markets dropping to their lowest levels this year, and others coming close to testing major support levels. This is happening coincident to renewed dollar strength. Commodities as a rule move in the opposite direction to the dollar, so if the dollar is in the early stages of its next leg higher, commodities may come under further pressure.

The energy markets have been mixed, with both crude oil markets unable to clear critical resistance so far. RBOB gasoline held short-term support but needs to get back above the high printed earlier this month to get the rally back on track. Natural gas rallied to test resistance formed from the February high and was unable to clear that level, and, therefore, remains in a long-term downtrend.

Gold and silver both reached 3-month highs, but once again have been unable to complete a breakout. Due to the length of time of the current consolidation, once these markets do breakout, we should see a decent move.

Soybeans resumed the long-term downtrend with a break of the recent low, further acceleration lower and a break of the 2014 low, which has the market currently at its lowest since April 2013. The RSI has moved lower to 27.67, which is very much in the bear range and suggest further weakness ahead.

Coffee has had a volatile week having initially broken above short-term resistance only to reverse then sharply lower, and take out the prior lows in the process. This move took coffee down to its lowest level since November 2013.

Currencies

Last week we wrote that sentiment had become extremely negative for the dollar and that the last time we saw such bearishness, a strong rally followed in the index. The same held true this week. Once sentiment had fallen to only 9% bulls, which matched the same levels seen previously, the dollar index rallied just over 300 pips. As before the long-term trend remains up. The RSI, however, is still in the bear range, so further strength will be required for that to change. A move back above 60 on the RSI would suggest that a rally back to the 100.785 top printed in March would lie ahead.

Interest rate futures

The 30-year T-bond ended the week lower, but it was another very choppy week. As before, support is coming in at the lows, as evidenced by the long lower shadows on the weekly charts, which have been seen in each of the last three weeks.

The long-term trend is up for the interest rate futures sector with the exception of the 30-year T-bond. Obviously bigger moves are likely to be seen when all the trends are aligned.

Good trading

Phil Seaton

LS Trader

Weekly Update 17 May 2015 – LS Trader

The S&P 500 printed a new all-time high this week, but so far without any follow through. The dollar has seen continued weakness that has taken the dollar index down to its lowest level since January. The British Pound has extended its recent rally that has now been sufficient for a change of trend to up. Commodities remain mixed, but strength appears to be returning to precious metals, where further rally could be ahead.

Stocks

The S&P 500 rallied to new all-time highs as expected, but as yet there has been no follow-through. The RSI came close to breaking the 60 level but ended at 58.33. Ideally the rally will continue above Friday’s high accompanied by a decisive break above 60 on the RSI to indicate that this rally has legs.

The Nasdaq 100 has lagged the S&P 500 and remains 66.75 points below its April high. The German Dax ended the week lower but is still in a long-term uptrend. Here the RSI is bouncing along the 40 bull market support level. If the RSI moves decisively below 40 accompanied by a price break below 11178, there could be some considerable further weakness. A change of trend to down is however still some way off.

The Nikkei moved higher this week, and the trend here also remains up. The RSI has also held above 40, keeping it in the bull range, and the RSI has advanced to 56.81. We may see the 60 level tested this week, which would suggest a rally to new highs.

Commodities

Gold and silver both had strong weeks. Silver broke out of the triangle that we have mentioned in recent weeks and may rally further to test major resistance. For now the trend is still down for silver, but the move above 60 on the RSI suggests that may change in the coming weeks. Gold, which has been weak for much of 2015, remains in a long-term uptrend, and we could see a resumption of the uptrend with further strength this week. The RSI has just pushed above the 60 level, for the first time since January, suggesting further strength is ahead.

The energy markets have seen mixed trading, but both crude and Brent crude are within range of a change of trend to up. Natural gas is also showing signs of strength but is still the weakest market in the sector in terms of trend position. This week has seen the RSI clear 60 for the first time since November last year, so further strength looks likely.

Currencies

The Pound rallied further and completed a change of trend to up. Sentiment for the pound reached its highest level since July 2014 this week. We also have the RSI up to 73.74, in the bull range. The pound though is the only major currency in a long-term uptrend against the dollar, although other majors could follow with a change of trend soon should dollar weakness persist.

Despite considerable weakness for the dollar index, the long-term trend is still up. However, a change of trend to down is now coming within range, but whether we see sufficient weakness for the trend change to be confirmed remains to be seen.

Sentiment for the dollar index, which had been at a bullish extreme only recently has now dropped to its lowest level in almost 2 ½ years. Sentiment measures have bulls at only 9%. The last time they were this low the dollar index was just over 80, and a swift rally to 85 followed over a few weeks. However, there are no signs that a bottom is in yet, and the RSI is down to 29.66, which suggests further weakness may yet be seen.

Interest rate futures

The 30-year T-bond has had another volatile week, which began with weakness that saw a drop to its lowest level since September. A recovery has since been seen, and we may see further strength to test once again the underside of the trendline from the September low.

The long-term trend is down for the long bond but remains up for the remaining markets in the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 10 May 2015 – LS Trader

It’s been an active week in the market and one that has seen large swings in price in stocks, currencies and interest rate futures. From all of these large swings seen in these three sectors, only one market, the 30 year T-bond, had completed a change of trend. The long-term trends, therefore, remain up for stocks and the dollar, and still mostly up for interest rate futures. Commodities markets remain mixed.

Stocks

Stocks have had a very mixed week, which saw quite aggressive selling into the lows on Thursday, followed by a turnaround to end the week on a much more bullish note. The FTSE 100, which is not a market we trade at LS Trader, put in a very strong rally from the lows on Thursday, breaching the 7000 level once again and adding 2.32% on Friday. The Dax had similar price moves over the two days and added some 567 points from Thursday’s low.

U.S. stocks displayed similar price action, but the S&P 500 was considerably stronger, rallying to within a few points of its all-time high posted towards the end of April. All four of the stock indexes that we trade at LS Trader remain in long-term uptrends, and the RSI is in the bull range in all four. These combined still suggest new highs will be seen.

Commodities

The energy markets continued their recovery through to the middle of last week, where some weakness was seen. The rally has so far been sufficient to complete changes of the long-term trend in heating oil and no leaded gas. Both Brent and Light Crude are within range of a trend change, which could be completed this coming week if strength returns to the sector.

We also saw a change of long-term trend in copper, but as yet have not seen any follow through. Palladium also had a good week and may be set to rally further to test major resistance around the 830 level. Both gold and silver continue to consolidate, trading sideways in large triangle patterns. This pattern suggests a large move is building up, but as yet the direction of the breakout is unclear.

Coffee dropped to new lows for the current move, which was the lowest level for coffee since December 2013 basis the continuation chart. The target is now 125.30, which is the 2013 low.

Currencies

The Pound had a very bullish week, but most of the gains came late in the week as sterling was buoyed by the surprising outcome of the General Election. The rally took the Pound to within touching distance of key resistance, but it has so far been unable to break through. Whether we see the Pound rally further to complete a trend change may be dependent on what happens to the dollar against the other majors.

The dollar index fell to its lowest level since January before recovering slightly later in the week. The RSI has dropped into the bear range, but weakness seen so far is not sufficient to trigger a trend change to down. For now there is a shelf of support that appears to be holding the index up, and it’s possible that we may see renewed strength from current levels. The dollar remains in a long-term uptrend against all of the majors, and therefore we continue to view recent dollar weakness as a correction in a larger bull market.

Interest rate futures

The 30-year T-bond sold-off once again this week and fell below the trend-defining 155 level that we mentioned last week. Further selling was seen following the breakout, followed by a recovery rally. The initial breakout also broke through a long-standing trendline that had been intact from the January 2014 low. It is common to see valid long-term trendlines tested again once they have been broken, and if that is going to happen, we should see prices turn lower from not much above last week’s recovery rally high.

The long-term trend is now down for the long bond, the first market in the sector to complete a change of trend to down.

Good trading

Phil Seaton

LS Trader

Weekly Update 3 May 2015 – LS Trader

Stocks began the week with strength but then reversed sharply lower, before finding support at the end of the week. The long-term trends still remain up for stocks, as they also do for the dollar and interest rate futures. However, the latter two sectors have both been under some pressure this week, and a change of trend to down is coming within range for some markets within each sector. At the same time, commodities remain mixed, but there are signs of strength in certain commodity markets, particularly the energies, which remain in the early stages of a recovery from an extended bear market.

Stocks

Both the S&P 500 and the Nasdaq 100 printed new highs for the current move on Monday. In the case of the S&P 500, that was yet another all-time high. For the Nasdaq 100, the high was a new high since 2000. However, both markets sold-off sharply following their highs, but both found support, which keeps the long-term uptrends intact. It can often be observed in financial markets that following three failed breakouts, which is what we now have in U.S. stocks, that the fourth breakout to new highs is successful. Therefore, although we are now in a period of seasonal weakness, further rallies in stocks can in no way be ruled out.

The Nikkei was also weak and fell below short-term support, before recovering slightly on Friday. The RSI held just above the 40 level, which is bull market support, at 42.95. The German Dax has been weaker still, and this week dropped to its lowest level in two months. The RSI here is right on bull market support, closing the week at 40.01.

All four of these stock indexes that we trade at LS Trader remain in long-term uptrends, and all remain in the bull range on the RSI, albeit only just in the case of the Dax and the Nikkei. It will take decent moves in price to the downside for any of these markets to trigger a long-term change of trend to down. A decisive move below 40 on the RSI would indicate further weakness ahead, at least in the near-term.

Commodities

The energy markets continue to advance. Heating oil completed a change of trend to up for the first time since July last year, as we expected would happen. No leaded gas will likely follow this week. Only a move above Friday’s high is required for a change of trend confirmation. Brent crude is also gaining strength and may also complete a trend change. However, further strength will be required. Light crude remains some way off the pace. All four of these markets have now seen the RSI cross above 60 and move into the bull range, so further strength is indicated.

Gold and silver both remain volatile in the near term as they continue to trade within a wider trading range. The price action suggests that the eventual breakout may lead to substantial moves. As yet, it’s unclear as to whether those breakouts will be to the up or downside.

Currencies

The dollar index dropped through the first support level and continued lower to see the RSI break down through RSI bull market support at 40. This is the first time the RSI has been below 40 and in the bear range since the first week of July last year. A change of trend to down is still some way off, due to the extent of the recent bull move, which was the second largest in the history of the dollar index. Other currencies have gained against the dollar sufficiently to bring a change of trend into range. Whether the dollar weakens sufficiently for any changes of trend to be completed remains to be seen.

Interest rate futures

The 30-year T-bond sold-off sharply this week and fell below support. The RSI also dropped through bull market support, ending the week at 31.82. This suggests further weakness ahead in this market and a possible test of trend defining support, currently around 155.

Even the strongest markets in the sector, namely the 5-year T-note and 3 month Eurodollar have seen weakness this week, the latter of which is just holding above support. The long-term trend remains up for the entire sector at present, but the 30-year bond could well change that in the coming days.

Good trading

Phil Seaton

LS Trader