Weekly Update 26 July 2015 – LS Trader

The past week has seen considerable weakness in the metals and energy markets and sentiment is reaching extremely bearish levels in both of these sectors. The S&P 500 matched its high of the year but was unable to break through, and selling followed, which took the Nasdaq 100 lower as well. The dollar has seen mixed trading but did reach new multi-year highs against a couple of the majors. Interest rate futures have rallied as stocks have sold off, and commodities, for the most part, remain deeply in a bear market.

Stocks

The S&P 500 matched its May high to the point, but was unable to print new highs. The RSI also failed once again to clear the 60 level, and the market turned sharply lower. The long-term trend remains up but this week’s weakness has seen the S&P 500 fall to within the middle of the wider trading range, meaning that a downside breakout is as likely as a breakout to new highs. These are interesting times for global stock indexes and the consolidations that have lasted for pretty much all of this year to date could be coming to an end.

Commodities

From last week: “This move saw Gold drop below the key November 2014 lows and may now continue lower towards our next target at 1090.” Gold dropped like a stone during a period of heavy short selling shortly after the markets opened late Sunday night, easily falling through our target at 1090. Further weakness followed later in the week, which culminated in a new low on Friday at 1073.7, basis the December contract. This is Gold’s lowest print since September 2009. The RSI fell 20 20.21, its lowest level since April 2013.

Silver has also seen some weakness but remains above its December low. That low was at 1427.5, and could be tested this week. Copper fell to a new six-year low, and that does not bode well for the global economy. Copper is known as Dr Copper due to it being a good indicator for the global economy, and the moniker stems from the idea that the metal has a PhD. in economics.

Probably the only bullish thing that can be said for the metals at present is that sentiment is reaching extreme bearish levels and this often indicates that all those that want to sell the market are already in and that there is, therefore, little left in the way of selling pressure. However, sentiment is by no means a timing indicator, as sentiment can remain negative against a market for months.

Sentiment is also very bearish against the crude oil markets, where the percentage of bulls has dropped to just 8% in Crude oil. Brent Crude fell through support as suggested in last week’s update and continues to head lower. Crude has fallen to within a dollar of the March low at 47.35, basis the back adjusted continuous contract. We continue to look for new lows in both Crude markets although Brent still has almost $5 lower to go.

Currencies

The currency markets have been mixed, with continued dollar strength being seen against the commodity-based currencies, where new multi-year highs have been seen against both the Australian and Canadian dollars. The other majors have been less clear, but both the Euro and Swiss Franc are approaching very key levels, and these levels could be tested in the coming days.

Of particular interest will be the dollar index, which is just below key resistance, and the Euro, which is close to testing key support. If both of these markets breakout (dollar index up and Euro down) then we can expect to see continued dollar strength that should lead to a rally for the dollar index back towards its highs for the year, and the Euro fall lower towards its low for the year. Such moves would also lead to dollar strength against the rest of the majors.

Interest rate futures

The interest rate futures markets have rallied this week, in particular, the longer-term markets, which is as expected due to the weakness seen in stocks this week. The long-term trends are still mixed in the sector, with the shorter-term markets remaining in long-term uptrends and the longer-term markets still in downtrends. It will take considerable rally for any of these markets to regain their highs posted earlier in the year, and it would probably take a steep sell-off in the U.S. stock indexes in order to see such a move.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 July 2015 – LS Trader

The past week has seen bullish moves in the stock indexes and the dollar. The Nasdaq 100 rallied to new multi-year highs, but as yet the move is unconfirmed by other U.S. stock indexes. The long-term uptrend for the dollar remains intact, and this past week has seen further dollar gains against most of the majors. The commodities markets remain mixed, as do interest rate futures.

Stocks

The Nasdaq 100 put in a very convincing five-day rally to easily take out the June 2015 high. The rally was more than sufficient to see the RSI move above 60 and back into the bull range. Further rally may be seen, and we can look for support on any reversal at the level of the prior highs, around 4550. If the uptrend is good, 4550 should hold.

The S&P 500 also rallied this week, but has been weaker than the Nasdaq 100 and has so far fallen short of new highs. The RSI closed right on 59.99 this week so may move above 60 in the coming days. If it does, we should see a rally to new highs.

The Nikkei has also rallied but unlike the Nasdaq 100, there has been a considerable loss of momentum over the past few sessions, which has resulted in the RSI being unable to clear the 60 level. The long-term trend is still up.

Commodities

Both metals and energies remain under pressure. Selling this week saw Gold complete a trend change of down to join the other three metals in a long-term downtrend. This move saw Gold drop below the key November 2014 lows and may now continue lower towards our next target at 1090.

Palladium remains by far the weakest of the metals, and it continues to trend nicely lower and may extend lower towards 575, the 2012 low. Silver saw some strength early in the week but has since turned lower, keeping the downtrend intact.

Crude fell to its lowest level since the 1st April and should head on down to test the March low which currently sits at 47.35 basis the back-adjusted continuous contract. Brent may also breakout to the downside this week and may also extend lower towards its low of the year posted back in January. RBOB remains by far the strongest market in the energy sector.

The grains markets have had very mixed weeks; corn, soybean meal and soybeans all made new highs for the current move but have since turned over and have given back some of the recent gains. Corn has been particularly weak and will likely test support in the coming days. Wheat has been weaker still and broke support earlier in the week.

Currencies

The long-term dollar uptrend is getting back on track. Decent moves have already been seen against the commodity-based currencies of Australia and New Zealand, and this week saw dollar strength reach six-year highs against the Canadian dollar. With the exception of the British Pound, the dollar is in range of breaking out against all of the remaining currencies that we trade at LS Trader, and the uptrend may also resume in the dollar index over the coming week.

The Euro has shown quite a bit of weakness and may this week fall sufficiently to resume the long-term downtrend and looks set to move ultimately lower to test its March low. If this breakout occurs and is confirmed by an equivalent breakout higher in the dollar index, then we can look for continued dollar strength and a rally to above the year’s highs.

Interest rate futures

The long-term trends in the interest rate futures sector remain mixed. The 3-month Eurodollar and the 5-Year T-Note both remain in long-term uptrends, but the other three interest rate futures markets that we trade at LS Trader, the 30 Year T-Bond, 10 Year T-note and the Long Gilts are all still in long-term downtrends. The longer-term markets in this sector have seen some strength this week with the long bond rallying for four days. Other markets remain weak and within range of their recent lows.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 July 2015 – LS Trader

The past couple of weeks has seen a considerable increase in volatility in several markets, due in part to what is happening in Greece and events in China. At the time of writing, the situation in Greece remains unresolved, so there could be further volatility this week depending on what happens.

The long-term picture however remains unchanged at present, with the long-term trends still up for stocks (that could change any time), mostly up for the dollar, down for most commodities and mixed for interest rate futures. This current mix is indicative of uncertainty in the markets on the whole and is something that we expect will be resolved soon, with some large moves very much due over the coming weeks.

Stocks

The stock markets gapped lower on the open last Sunday night and then had a very mixed week of rallying and selling. Based on our long-term trend analysis the long-term trend is up in all four stock indexes that we trade at LS Trader. However, considerable technical damage has been done, which includes seeing the markets break and stay below their long-term trendlines from the October lows, as well as seeing a break of RSI bull market support at 40. These two technical events often occur ahead of trend changes, but as yet critical long-term support has held in all four markets. That could change though at any time.

Commodities

We wrote in last week’s update that weakness was returning to the energy markets and, in particular, the crude oil markets. That was 100% correct as this week saw heavy selling in the oil markets, which was sufficient to resume the downtrend. In spite of a bounce seen during the second half of the week, the trend remains down, and we continue to look for weakness to take out the March lows over the next few weeks.

The grains markets have also seen some large moves with a mixture of strong and weak trade seen in different markets in the sector this week. Soybeans and soybean meal both saw weak trade early in the week, followed by renewed strength, which in the case of meal saw the market recover to a new high for the current move and reach its highest level in 8 months.

London Cocoa has also been strong of late, this week rallying to its highest level since April 2011. The next target lies at 2236. If that level can be cleared, there is potential for considerable further rally higher.

Currencies

The long-term trends on balance still favour the dollar, particularly against the commodity-based currencies of Australia, Canada and New Zealand, which are the weakest currencies at present of those that we trade at LS Trader. The New Zealand dollar fell to new six-year lows this week and, the Aussie also fell to its lowest level since 2009. The Canadian dollar looks set to test its March lows against the dollar, and if support there is taken out we could see a move lower towards its March 2009 low.

Interest rate futures

Interest rate futures saw considerable volatility during the past week. The markets in this sector gapped higher on the open on Sunday night and rallied considerably higher before then reversing lower again.

The 3-month Eurodollar and the 5-Year T-Note both remain in long-term uptrends, but the other three interest rate futures markets that we trade at LS Trader, the 30 Year T-Bond, 10 Year T-note and the Long Gilts are all still in long-term downtrends. Depending on what happens in Greece this week we could see further large swings in this sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 July 2015 – LS Trader

The past week began in eventful fashion with volatile trade seen in several markets when the markets opened late on Sunday night. Several markets made quick moves, including stock indexes, interest rate futures and some currencies. With the referendum in Greece on Sunday, it’s possible that we will see similar volatile price action this week.

The one thing that markets dislike is uncertainty, and the Greek situation is providing uncertainty. However, the referendum is known in advance, so whatever happens will likely not come as too much of a shock. At the time of writing, the Yes vote is favoured, which may be bullish for stocks and the Euro at least in the short-term, but any moves could be quickly retraced as the longer-term prospects come into focus.

U.S. markets were closed on Friday for the 4th July holiday.

Stocks

Stocks began the week sharply lower, with the Nasdaq 100 falling through support and the long-term trendline. The lows for the week in the case of the S&P 500 were printed on Tuesday, and a mild recovery has since been seen.

Even the Nikkei, which has been the strongest of the global stock indexes of late succumbed to weakness. Its trendline, which dates back to October 2014 held and the market rallied to recover a decent amount of the earlier declines.

Of the four stock indexes that we trade at LS Trader, the index most likely to be affected by the Greek situation is, of course, the German Dax. The Dax is also the weakest by far of these four indexes and has made a big move lower since its all-time high printed back in April. The market is range-bound at present, and it will take quite a large move for a change of trend to down to be confirmed.

Commodities

The grains markets continued with strength and most markets in the sector put in considerable rallies this week. These moves led to changes of the trend to up for Soybeans, Soybean Meal and Corn, joining Wheat, which had already completed a prior trend change.

Weakness is returning to the energy markets, particularly the crude markets which look as though they may be resuming the long-term downtrends and may be headed down to test the lows printed earlier in the year. Neither of the crude markets rallied sufficiently from their March lows to complete a change of trend to up, so both remain in long-term downtrends and look poised to move lower.

With all the uncertainty in global markets at present, most would be expecting a rally in gold, but this is not the case. In fact, gold continues to drift lower and this week dropped to its lowest level since March, not far above major support. The RSI on gold is holding right on bull market support at 40. If this level can be decisively broken, we may see gold move lower. Silver also moved lower this week and remains in a long-term downtrend and with the RSI in the bear range.

Currencies

The Euro may be subject to considerable volatility this week depending on the outcome of the Greek referendum on Sunday. Following volatile trade seen late Sunday and Monday last week, the market has mostly traded sideways as the markets digest what has happened and attempt to anticipate what is ahead.

If volatility does come in the Euro, which seems likely, at least in the short-term, we may see similar moves in the dollar index since the Euro makes up 57% of the dollar index. Because of that, dollar index volatility should be less than whatever is seen in the Euro. From a technical standpoint, both the dollar index and the Euro are range-bound, and it will take a decent move of a few hundred pips to see either market break from its current range.

From last week: “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.” The New Zealand dollar did fall as expected and printed a new low for the current move at 6623 before a bit of recovery.

Interest rate futures

Interest rate futures were also affected by volatility in late Sunday/early Monday trading last week, with the initial reaction being bullish, followed by more subdued trade as the week progressed.

The 3-month Eurodollar rallied to new highs on Monday but then pulled back a bit, but the trend remains up in this market as well as the 5-Year T-Note. All other markets in the sector remain in long-term downtrends.

Good trading

Phil Seaton

LS Trader