Weekly Update 28 June 2015 – LS Trader

The past week has seen stocks move lower, and the dollar move higher, but the big moves have come in interest rate futures and commodities. Interest rate futures opened the week lower and traded down to below their recent lows in both the 30 Year T-bond and the Long Gilt. Commodities markets have seen large rallies in the grains markets, which could be the start of a new leg up.

Overall, the price action in stocks and the dollar show that we are still in consolidations in these markets, but the moves seen in other markets suggest that the consolidating phase is nearing an end. Therefore, we can look for an increase in volatility and additional market breakouts over the coming weeks. This price action and current market conditions are very similar to what we saw last year before many markets broke out into a big trending phase for several months. In other words, be ready for some big market moves between now and the end of the year.

Stocks

Stocks ended the week lower in a week that saw the Nasdaq 100 post a slight new high, but then turn lower. The S&P 500 failed to confirm the breakout and rolled over from just below resistance. This move keeps the S&P 500 below its trendline from the October lows, and the failed breakout for the S&P 500 suggests that the index may be poised for a move lower.

The Nasdaq 100’s brief new high means that we can redraw the trendline from the October low to the final low ahead of the high, which was the 15th June. The index remains above this new trendline, and we may see that trendline tested this week. For now the trends remain up in both U.S. indices.

The Dax ended the week higher but remains by far the closest index of the four we trade at LS Trader to a change of trend to down. The Dax broke its trendline back in April and has been heading lower since.

The Nikkei remains the strongest index of the four, this week reaching its highest level since April 2004 on the basis of the continuation chart. The monthly chart is so bullish that the RSI has risen to 81.69, which is the highest reading we have on our data, which stretches back to 1990 for this market.

Commodities

There were some big moves in the commodities markets this week, and particularly in the grains sector, which led to a change of trend to up for wheat, the first market in the sector to complete a change of trend after a long bear market. Strength has also been seen in other markets in the sector and we may see additional grains markets complete trend changes in the coming days. The RSI has moved well into the bull range in soybeans, soybean meal, corn and wheat.

Palladium fell through the support zone around 690 that we mentioned in last week’s update and continues to make its way towards the next level of support at 640. Silver spiked lower during Friday’s trade but recovered some of the day’s losses by the end of the day. The breakdown in silver, which remains well below the trendline from the early December low, has yet to be confirmed by gold, which still narrowly remains in a long-term uptrend.

Currencies

The dollar index continued higher from the hammer pattern that was printed during the prior week, which narrowly held key trend defining support. For now the trend for the dollar index is higher but another test of support may be due. The RSI remains in the bear range. Should support hold at the recent lows then the long-term trend for the index remains intact and we can continue to look for an additional rally back to the highs of the year over the coming weeks.

The New Zealand dollar dropped to a new 6-year low this week and may fall further to test the next level of support at 6700.

Interest rate futures

Interest rate futures opened the week lower and continued lower throughout the week. The 30 year T-bond dropped below its recent low to reach its lowest level since August last year. The 10 year T-note has also declined and may test support in the coming days.

The Long Gilt also dropped below its low that was posted earlier this month and reached its lowest level since November last year. For now the trends in the sector remain mixed, with the shorter-term interest rate markets still in a long-term uptrend.

Good trading

Phil Seaton

LS Trader

Weekly Update 21st June 2015 – LS Trader

Stock indexes and the dollar remain near to key levels. This week’s recovery in the major stock indexes took them to within touching distance of a test of their recent highs. The dollar, on the other hand, is also testing key levels, which is support in the case of the dollar index. Dollar weakness has taken the Euro to within range of a change of trend to up. The proximity to key levels in several markets suggests that the next week or so could be very interesting indeed.

Stocks

Stocks had a strong week until Friday, where some weakness was seen. The rally from Monday’s low took the S&P 500 to within 7 points of its May all-time high. The RSI has held the 40-bull market support level, and the long-term trend remains up. Another test of all-time highs looks a possibility.

Price action in the Nasdaq 100 was almost identical to the S&P 500, but the Nasdaq remains slightly stronger in terms of momentum. The Nasdaq could also test its multi-year high in the coming week.

By far the weakest of the four stock indexes we trade at LS Trader is the Dax, which this week dropped to its lowest level since February. Here the RSI has already broken the 40 level, which suggests another test of last week’s lows may be ahead.

Commodities

Sugar continues to fall and this week dropped to new 6½-year lows. The RSI is down to a bearish 27.84, and there is nothing in the chart that suggests anything other than a trend continuation at present.

Palladium broke a key shelf of support to fall to its lowest print since February 2014. There is a zone of support just below current levels and down to the 690 area, but if prices can make their way below that then we can look for a continuation down towards the next support level at 640.

Copper is another metal that is sinking fast ever since the failed upside breakout in early May. For now the trend remains up but with the RSI falling to 25.92 this week, well into the bear range, we may see further weakness to test major support in the coming weeks.

As for the precious metals, we have still yet to see any decisive price action, but silver is close to testing key support in the coming days. Gold, on the other hand, did put in quite a decent rally on Thursday, but again there is nothing convincing here, so further sideways consolidation seems likely until we get a clear breakout.

Currencies

The British Pound resumed the uptrend this week with a break of the May high. The move was confirmed with a break of the 60 level on the RSI, and the rally may have further legs. The Euro has also rallied to within range of a change of trend to up, and a change of trend could be confirmed this week. The Euro and the Pound are highly correlated, so the best moves tend to occur when both markets are moving together, in other words, one currency confirms the other.

The dollar index came within a pip of completing a change of trend to down but support narrowly held on Thursday, and a 100-point rally quickly followed. This makes last week’s low a very key level for the index, and indeed for the dollar in general. Should that level be broken, the dollar would be in a downtrend, and the move would likely be confirmed by an upside breakout in the Euro. The RSI has dipped below bull market support at 40, dropping to 37.31 this week. However, the long-term trend is still up for the dollar index, albeit only just.

However, it’s not all been bad news for the dollar. The New Zealand dollar continues its recent collapse down to new multi-year lows and is now at its lowest level in 6 years, give or take a week.

Interest rate futures

Interest rate futures continued their corrective recovery this week, and further strength may be seen. Only the 30 Year T-Bond and 10 Year T-Notes completed a trend change to down from the U.S. interest rate futures sector, with both the 5 Year Notes and 3 month Eurodollars remaining in long-term uptrends. The latter could complete an upside breakout this week as it is only a couple of points away from its April and May highs.

Good trading

Phil Seaton

LS Trader

Weekly Update 14th June 2015 – LS Trader

Stocks failed to reach new all-time highs for another week and continue to show signs of weakness, with some key technical levels being temporarily broken. The dollar has had a mixed week but has reached new multi-year highs against the New Zealand dollar. Commodities and interest rate futures remain mixed, as they have for several months, which is largely due to indecisive, corrective trade in the dollar. A decisive move seen either way in the dollar will likely see a resolution of the mostly corrective price action seen in the majority of commodities markets.

Stocks

The S&P 500’s all-time high that was printed back on the 19th May remains intact and as previously, there are still signs of weakness entering the index. This week saw a dip below the trendline from the 1st February to the May low broken before a decent rally was seen on Wednesday. The RSI has held the 40 bull market support level once again, and the long-term trend is also up, but price action to the upside has been far from impulsive or trending since March and the market continues to look prone to a deeper correction. A breach of 40 on the RSI would suggest that the top was in, at least for the time being.

The Nasdaq 100’s high that was printed back on the 27th April has also not been surpassed. Similar price action has been seen here as was seen on the S&P 500. Here too the trendline has been broken but in the case of the Nasdaq, the trendline dates back to the October low and price has closed below it ever day this week. The RSI here also holds above 40 and the trend is also up, but a change of long-term trend is coming into range and may be seen over the next few weeks should the weakness seen over the past few weeks persist.

We exited the Nikkei this week just ahead of the expiry of the June contract on a break of short-term support. The Nikkei remains the strongest of the four indexes we trade at LS Trader, and it remains above its trendline that dates back to October.

By far the weakest of the stock indexes is the Dax, which this week fell to its lowest level since February. The RSI also moved below the 40 level, and that suggests that further weakness will be seen.

We have also rolled contracts forward to the next contract for stock index futures, so are now working orders for the September contract.

As we have written about trendlines here, I thought I would touch briefly on the correct way to draw trendlines as most get them wrong. A correct trendline should start from the low of the period under consideration to the lowest low ahead of the final high of the trend currently under consideration, but must not dissect prices in the meantime. Countless times I see ‘experts’ draw trendlines that dissect prices. If the price goes through a trendline, it is either incorrectly drawn or the trendline has been broken. It is because most draw trendlines incorrectly, that horizontal support and resistance lines are far more reliable. The method I have described here makes trendlines a science and not subjective. Anyone following these rules should be able to draw trendlines correctly every time.

Commodities

The energy markets remain mixed, and the strongest market in the sector is RBOB Gasoline, which completed an upside breakout this week. The long-term trend is also up for heating oil, but that remains considerably weaker than RBOB. Both crude markets have failed to complete a change of trend to up and remain below key resistance levels in spite of the strong rally from the March low.

Natural gas also remains in a long-term downtrend but did put in a decent 3-day rally this week, but has so far been unable to clear key levels.

Sugar fell through support on its way to printing its lowest price since January 2009, and with the move being confirmed by a drop below 40 on the RSI may yet be headed lower.

Gold and silver continue to chop sideways, but silver remains the weaker of the two precious metals. Silver is also in a long-term downtrend, its RSI is below 40, and key support may be tested this week.

Currencies

The dollar index ended lower for the second straight week as the dollar correction continues. Currently, the dollar is only trending against the New Zealand dollar, where the kiwi dropped to new multi-year lows again, and against the Yen.

Against the other majors, the dollar has seen mixed trading but has been weak against the Pound, which is still the only major to have completed a change of trend to up against the dollar so far. We may yet see a push up towards the May high, especially if the 60 level on the RSI is decisively broken.

This week was quarterly expiration for currency futures, so we have rolled forward to the September contract.

Interest rate futures

Interest rate futures had dropped to new lows this week (30 Year T-Bond and 10 Year T-note) before reversing higher by the end of the week. The long-term trend for these two longer-term interest rate futures remains down, but the shorter-term markets remain in uptrends, albeit not by much.

The long gilts ended the week higher having found support from just above the lows printed during the prior week’s trading, which now is critical support.

Good trading

Phil Seaton

LS Trader

Weekly Update 7 June 2015 – LS Trader

There were no new highs in any of the stock indices we trade this week. Although the long-term trends all remain up for these indices, there are some signs of weakness appearing, as explained in more detail below. The dollar was also weak but did nonetheless manage to reach new multi-year highs against both the Yen and the New Zealand dollar. Interest rate futures have seen mixed, but mostly weak trade and we have seen two addition interest rate futures markets confirm a trend change to down.

Stocks

Of the four stock indices that we trade at LS Trader, currently only the Nikkei has an open long position. We remain flat the S&P 500, Nasdaq 100 and the Dax, the latter being by far the weakest at present and currently out of range for any new trades this week. The Nikkei has been trading in a very narrow range over the past two weeks but remains close to its multi-year high.

The S&P 500 failed to make a new all-time high for the second consecutive week but remains in a long-term uptrend, as do the other three indexes. However, continued failure to clear 60 on the RSI shows that momentum is weak. This week has seen the RSI drop to 44.43, just a few points above the bull market support level at 40. It has also seen the S&P break below a trendline that had held since the middle of October. If we see further weakness in the coming days and the RSI break below 40, it would be an indication that the top may be in and that we may see additional weakness back to at least the 2030 area, which is a potential support area.

The Nasdaq 100 has also failed to breakout to new highs. Here the RSI is slightly more bullish, and the Nasdaq is also holding above the trendline for the same period as the S&P 500. That trendline will dissect the market at 4430 on Monday’s trading. It will be interesting to see if the trendline holds. As a general rule, horizontal trendlines, known as support and resistance lines, are more valid than sloping trendlines due to that fact that people tend to draw trendlines in different ways and also have differences in their data, especially where futures contracts are spliced together to create a continuous contract.

Commodities

The energy markets have been weak, and all five of the energy markets we trade at LS Trader have failed to breakout to the upside. This keeps the long-term trends down for three out of the five markets. Natural gas is still the weakest by far and remains close to testing major support.

Gold declined this week to its lowest level in 2 ½ months and perhaps importantly, dropped below 40 on the RSI. This suggests further weakness ahead and a possible test of major trend-defining support around $25 below Friday’s close.

Silver has also been weak and has closed right on the trendline from the early December low. The RSI has also dropped below 40. It could be a key week ahead for precious metals.

Currencies

The Japanese Yen remains the weakest of the currencies that we trade at LS Trader. This week has seen the Yen fall to new multi-year lows and has also seen bullish sentiment drop to just 7% (the standard Japanese Yen contract is an inversion of the USD/JPY forwards that most spread betting brokers quote, so 7% bulls for JPY/USD is the same as 93% bulls for USD/JPY).

The dollar also reached new multi-year highs against the New Zealand dollar but has seen mostly weak trade against the other majors. The long-term trends though are still favouring the dollar; the recent correction as yet being insufficient to confirm a change of trend. It remains our view based on our proprietary trend analysis that the dollar will rally back to new highs both on the dollar index and against the other major currencies over the coming weeks.

The week ahead is quarterly currency expiration so the currency futures will roll from June to September.

Interest rate futures

Interest rate futures remain volatile, but further weakness has been seen. This has resulted in a break of critical support in the 30 Year Bond, the 10 Year T-note and the Long Gilts, the latter two resulting in a change of long-term trend to down. Therefore, the balance of trends from this sector is now down, and we could see the 5 Year T-note complete a trend change in the coming days should weakness continue in this sector.

Even the short-term 3-Month Eurodollar contract has seen considerable weakness this week. This market has been in a long-term uptrend since July last year and is now showing signs of weakness. A change of trend is still some way off.

Good trading

Phil Seaton

LS Trader