Weekly Update 30 August 2015

The volatility that had been seen during the prior week was exceeded this week, as we saw many markets experience levels of volatility not seen for many years, certainly not since at least 2008.

The corrective rallies seen in stocks and commodities are currently viewed as corrections in a larger bear market, so they have not impacted on the long-term trends. The current long-term trend position is down for stocks and commodities, but mixed for currencies (mostly favouring the dollar) and mixed for interest rate futures. This means that we have very likely not seen the end of these moves and that bigger moves are ahead.

Stocks

The S&P 500 fell through the next level of support on Monday but found support from above the October 2014 low. Once the bear market resumes, last week’s low and then subsequently the October 2014 low, which stands at 1790.25 basis the continuous back-adjusted contract, will be the target. It would take a rally back to new all-time highs to change the outlook, and for that to happen following the decline seen recently is not how markets typically behave, so we view that as unlikely.

It’s a similar position for both the Nasdaq 100 and the Dax. The Dax has more room for a decline before it reaches the October 2014 low, which is at 8383, some 1888 points below Friday’s close.

The Nikkei completed a change of trend to down this week, but that change will not be confirmed until Monday’s low, at 17190 is taken out. The rally from Monday’s low has risen to the prior support level, which should now act as resistance if we are to see lower levels again soon.

The VIX, which known as the fear index, shot higher on Monday to levels not seen in years. This indicates that the complacency that has been in place for many investors for a few years is now over. We can, therefore, expect further volatile moves in the stock markets in the near future, and eventually significantly lower prices. The lows seen last week, and the aggressive bounce that followed are probably just the start of what may see stock indexes move sharply lower over the coming months. The biggest up-moves come in bear markets, and the corrective rallies seen over the past few days in stocks are about as big as they come.

From a technical perspective, when looking at a chart, the largest bar visible for the period under consideration sets the trend. This week the biggest one-bars are to the downside, and these bars seen on Monday were the biggest in many years. In spite of the strong rallies seen since Monday’s lows, none of the daily bars was larger from high to low than Monday’s down bars.

Commodities

The volatility seen in stocks filtered through into some other markets but not to the same extent. There were very big moves seen in energies on Thursday and Friday, but we had not earlier seen the large swings that were present in stocks. When looked at from a larger perspective, the two-day rallies seen in the energy markets are normal corrections in a bear market. They are not as yet trend-defining moves, nor are they anywhere near to being trend defining moves, they are just bear market rallies. The long-term trend for all the markets in the energy sector remain down, and the RSI for each is still in the bear range. Therefore, once these counter-trend rallies exhaust themselves, we can continue to look for new lows.

Currencies

The currency markets have also seen some wild moves this week. The dollar index dropped through major support but then reversed sharply higher, ending up for the week, and the Euro was a near-perfect inversion of that price action. The biggest move in the currency markets came in the Yen, which saw a huge level of volatility, but ended the week not far from where it began. The long-term trends in the currency markets still favour the dollar on balance.

Interest rate futures

The interest rate futures markets rallied sharply higher on Monday in response to the stock markets sell-off. These moves then reversed as stocks rallied. In spite of the recent strength and the rally seen on Monday, the 30-year T-Bond remains in a long-term downtrend, as does the Long Gilt. The shorter-term markets have each been stronger and saw rallies to new highs this week. These markets have not been able to hold onto their gains and have since moved back below the prior highs. This suggests additional weakness in the short-term.

Good trading

Phil Seaton

LS Trader

Weekly Update 23 August 2015 – LS Trader

The past few days have seen some of the most volatile trading conditions in recent times. These moves have continued on from the volatility that began during the previous week, and has resulted in the stock indices breaking major support levels and confirming a change of long-term trend to down for the first time since 2014.

The long-term trends based on LS Trader’s proprietary algorithm are now down for stocks and commodities, mixed for interest rate futures and up for the dollar.

Stocks

From last week: “The long-term trend is currently up, but a breakout from this box range could lead to a substantial move in the direction of the breakout. This range-bound trading has continued for longer than normal, and a decisive breakout is long overdue.” A decisive breakout is exactly what we got, and this large move confirmed a change of trend to down for the S&P 500. The RSI also dropped easily through the 40 bull market support level, ending the week at 26.02, firmly in the bear range.

In just three days the S&P 500 fell from its high of 2103.75 to its low on Friday at 1967.25, a staggering decline of 136.5 points. A move of that magnitude has not been seen since 2008. It’s fair to say that the long-term trendline from the October low is well and truly broken and is now no longer valid. It’s worth noting that this week saw a trendline break on the weekly chart that has supported prices since October 2011. The long-term trend is now down.

The Nasdaq 100 made a similar move, also breaking its equivalent trendline and falling through the 40 level on the RSI, confirming a change of long-term trend to down in the process.

The Dax broke down through major support one day ahead of its U.S. counterparts, falling from its high of the week at 11114 on Monday, to its low on Friday at 9980, for a 1134-point drop in just one week. The Dax, therefore, confirmed a change of trend to down one day ahead of the U.S. indices. Of the four indices that we trade at LS Trader, only the Nikkei remains in a long-term uptrend, and that could change soon if weakness continues.

Commodities

Gold may be off to the races based on its advance this week and the fact that the RSI broke above the 60 bear market resistance level on the RSI. This is the first time the RSI has cleared the 60 level decisively since February when gold was more than $110 higher than today’s prices. Further strength looks likely, and a possible change of trend to up may follow in the coming days.

The energy markets continue to take a battering as Crude Oil and Brent Crude both fell to new multi-year lows. Heating oil and No Leaded gas have also seen weakness and both look to be heading down towards their respective January lows.

Currencies

The dollar has seen weakness this week against most of the majors. This weakness led to us exiting USD/CHF, and a very profitable short NZD/USD trade, where we banked 424 pips profit in just a week less than three months in the trade.

The Euro has risen sharply this week against the dollar and may continue higher to test trend defining resistance at the May high. Should this high be broken, the Euro may continue higher and possibly as high as the $1.2200 area over the coming months.

Weakness in the dollar index has continued, and we could be seeing a move lower to test major trend-defining support over the coming week or so. The RSI has already dropped through bull market support at 40, which suggests further weakness lies ahead.

Interest rate futures

Interest rate futures were higher this week. As before, the leading markets in this sector are the shorter-term markets such as the 3 Month Eurodollar and the 5 Year T-Note, both of which rallied to new highs this week. The long-term trend for both of these markets remains up.

The long-term trend for the longer-term interest rate futures, such as the 30 Year T-Bond, 10 Year T-Note and Long Gilts are all still down, but strength continues to be seen in the short-term. Whether we see sufficient strength for a change of trend in any of these markets over the coming weeks remains to be seen.

Good trading

Phil Seaton

LS Trader

Weekly Update 16 August 2015 – LS Trader

The past week has seen some volatile swings in several markets, which have seen some large daily moves in both directions. Such moves have been seen in stock indices and currencies. Precious metals have bounced, but overall commodities remain weak, highlighted by continuing weakness in the energies sector, where Crude Oil dropped to a new 6½ year low on Friday.

The long-term trends by sector are unchanged and are still up for stocks and the dollar, mixed for interest rate futures, and down for commodities.

Stocks

The S&P 500 has had a volatile week. Having opened in bullish fashion on Monday, a reversal was seen on Tuesday which continued Wednesday, culminating in a spike low and a sharp reversal back higher. This spike briefly pierced the long-term trendline, but the market recovered to end the week higher. The RSI is at 48.14, which indicates an almost total lack of trend, as the market trades in what is effectively a large box range that has been in place since February. The long-term trend is currently up, but a breakout from this box range could lead to a substantial move in the direction of the breakout. This range-bound trading has continued for longer than normal, and a decisive breakout is long overdue.

Commodities

Gold and silver both rallied this week, and both cleared their respective trendlines, which have been in place since June and May respectively. The long-term trend is still down for both metals, and the RSI remains in the bear range, which suggests that once this counter-trend move is over, we may yet see declines to new lows again. Copper fell to its lowest level since May 2009, but Palladium did not make new lows this week and has rallied to test resistance. Resistance will likely be tested again this week, but the trend remains down for the sector.

In spite of some strength seen in the metals, the commodities sector continues to take a battering. The Bloomberg Commodity index dropped to its lowest level in 13 years this week, and commodities are down 62% since the top back in July 2008.

Crude oil dropped to its lowest level in 6½ years on Friday and is now down some 72% from the big $147 top in July 2008. Our long-standing target of 33.55, which is the 2009 low looks as though it could be reached this year. In terms of a correctly spliced together back adjusted contract, which forms a seamless stream of data without price gaps due to rollovers, Crude Oil is at its lowest level since our data began, all the way back to 1983. Brent Crude has also been extremely weak, but not quite as week as Light Crude.

Currencies

The dollar index moved lower this week, breaking support in the process. The dollar has been weak against most of the majors this week. The Australian dollar has seen some very volatile trading this week, with a break of resistance, followed by a reversal to new lows, and then a reversal higher once more. The long-term trend is still down. The dollar continues to fare better against the other two commodity-based currencies of Canada, and New Zealand, and the dollar remains close to its recent high against both currencies.

As before, the big level to watch in the currency markets is the July low in the Euro. There have been several attempts at testing that level and so far each of them have held firm, which has resulted in the Euro returning to the middle of its recent range. The trend defining range is now considerably narrower than normal and a breakout in either direction could feasibly be seen over the coming weeks. If The July low is broken, that would strongly indicate a move lower and an eventual test of the March low. Conversely, a break of the May high would suggest a larger counter-trend rally, possibly to as high as the $1.2200 area.

Interest rate futures

Interest rate futures remain mixed. As before, the long-term trend is down in the longer-term markets in the sector but is still up in the shorter-term markets.

The long bond has been strong for the past few weeks and this week moved well past the 61.8% retracement of the decline from the April top. There was a spike higher on Wednesday, but the market was unable to hold those levels and dropped back, ending the week lower.

The 5 Year T-Note, which has been the strongest in the sector, rallied to a new high on Wednesday, exceeding the previous high posted back in April. However, as with the long bond, the 5 Year was unable to hold on to the gains and pulled back, ending the week slightly lower.

Good trading

Phil Seaton

LS Trader

Weekly Update 9 August 2015 – LS Trader

The past week has seen an increase in volatility in the stock indexes and also the start of what may be a period of sustained weakness for stocks. For now the technicals remain intact and in favour of the long-term uptrend, but not much additional weakness is required for that to change.

The dollar has had a mixed week, as the dollar index broke through resistance twice, but as yet without follow through, while the Euro held key support. Interest rate futures and commodities have also been mixed, but the overall commodities bear market is very much intact.

Stocks

The S&P 500 and Nasdaq 100 both moved lower this week, with the latter taking out key short-term support. However, for now at least, both indexes remain in long-term uptrends. Both also remain above their long-term trendlines and are also still in the bull range on the RSI. The S&P 500 may test short-term support and its trendline this week, and may also test bull market support at 40 on the RSI. If these levels are broken, it will indicate that the top may be in, at least for the coming months.

Of the four indexes that we trade at LS Trader, the Nikkei 225 remains by far the strongest in terms of proximity to its recent top. The Nikkei, however, is below its trendline from the October low, which it broke early last month.

Commodities

Brent Crude ended the week lower and caught up with Light Crude in that it has now taken out its low of the year, which in the case of Brent was posted back in January. RBOB gasoline, which has been the strongest in the sector this year, traded sharply lower this week and will likely test trend defining support in the coming days.

Silver rallied this week and met key short-term resistance and also hit the trendline from the May high. This makes last week’s high a key level. Any strength above last week’s high would break resistance and the trendline, and would suggest that we were going to see a counter-trend bounce higher over the next few weeks. The long-term trend, however, is unlikely to change for the foreseeable future. Currently, it would take a move above 1786 for the trend to change, which is a long way above current prices.

Gold has effectively traded sideways for the past 14 sessions but is gradually working its way up to test resistance. Copper and Palladium remain weaker that the two precious metals, and both have fallen to new lows for the current move this week. The trend remains down across the sector.

Currencies

The dollar index briefly pierced key resistance this week but has so far been unable to press higher. This is very likely due to the inability of the Euro to break its key support level. Ideally both breakouts need to happen together as one will confirm the other. The Euro will need to break support for the index to advance much further. Therefore, the July lows for the Euro are key not just for the Euro, but also for the dollar index and the dollar as a whole.

The commodities based currencies, which have been by far the weakest of late, have bounced higher this week, and the trends in the Australian and New Zealand dollars may be coming to an end for now. The Canadian dollar did fall to a new multi-year low this week but has since recovered some of the prior losses. The long-term trend, however, continues to favour the dollar almost across the board.

Interest rate futures

The trends in the interest rate futures sector remain mixed, and as has been the case for the past few weeks, there are no trends present in the sector. The long-bond has continued with its counter-trend rally and has this week reached its highest level since the end of April. The trend, however, remains down.

The long-term trend is also down for the 10 Year T-note and the Long Gilt but remains up for the 5 Year T-note and the 3 Month Eurodollar. If stock index weakness persists, we may see a flight to safety in the buying of bonds.

Good trading

Phil Seaton

LS Trader

Weekly Update 2 August 2015 – LS Trader

It’s been a mixed week for several markets and sectors this week as many markets have seen swings both up and down at different stages in the week. The long-term trends remain as before and are still up for stocks, mostly up for the dollar, down for commodities and mixed for interest rate futures markets. Several markets remain poised for what could be key breakouts as numerous markets are within range of testing important support and resistance levels.

Stocks

The Nasdaq 100, which is currently our only long stock index trade at present, fell early in the week but then recovered well, retracing almost 50% of the decline from the 20th July high. The long-term trend remains up, and the RSI is still in the bull range. The market also remains above the long-term trendline from the October low, which currently supports the market around 4389.

The S&P 500 has seen similar price action this week, almost retracing 78.6% of its recent decline. Often when a move retraces more than 78.6% of a decline it goes on to retrace the full amount, so we could yet see another go at the recent highs. The long-term trend remains up, but the RSI continues to be range-bound between 40 and 60 as it has for nearly all of this year to date, which is very indicative of a choppy, sideways market. A clear break out of this range on the RSI may result in a decent move.

From a seasonal perspective, we remain in a weak time of year. 1988 to 2014 has August as the weakest month of the year for both the Dow and the S&P 500.

Commodities

The energy markets remain weak. Light crude this week feel below its March low basis the back-adjusted continuous contract, but has so far not continued much lower following the break of the key low. The trend is very much down, and the RSI is in the bear range. Brent Crude has also been weak but remains above its low that was formed back in January. That level could be tested this week. RBOB gasoline remains the strongest of the sector and has yet to break down and remains a long way above its January low.

Following the recent capitulation of the metals, we have seen a couple of weeks of consolidation as the metals hold just above their recent lows. Copper was the only market in the sector to print new lows for the current move this week. The long-term trend remains down for all four markets in the sector. As before, sentiment is very negative towards the metals, so a bounce would not be a surprise, but the longer-term trend looks set to remain down for quite some time yet. A considerable rally will be required for any of the metals to rally sufficiently to trigger a change of trend to up.

Currencies

The dollar has had a mixed week of trading which has seen some swings in both directions against several of the majors. The dollar index has remained range-bound for the past few months and has so far been unable to break through resistance. It’s a similar story for the Euro, only inverted. In the Euro, key support continues to hold as the market remains in a box range that has held since April. There will eventually be a breakout from this range and that breakout should yield a decent move. The odds slightly favour that the breakout will be bullish for the dollar and probably lead to a rally back towards the highs of the year in the dollar index, and for the Euro to head on down to test the March lows.

Interest rate futures

The trend for interest rate futures remains mixed, with the long-term trend still up for the shorter-term markets, but still down for the longer-term markets. In the short-term, however, there is strength being seen in the sector. The long bond has rallied to its highest level since early May, but a considerable further rally will be required for a change of trend to up to be seen.

The 5-year T-Note remains the strongest of the sector at present, and may breakout to the upside this week, as may the 3 Month Eurodollar.

Good trading

Phil Seaton

LS Trader