Weekly Update 27 September 2015 – LS Trader

<p>The stock markets continue to consolidate but could be due to break out again soon. Both the Dax and Nikkei came close to breaking their respective 24<sup>th</sup> August lows. If those lows can be taken out, we could see some decent moves in numerous other markets as well, particularly USD/JPY which has been very highly correlated with the Nikkei in recent weeks.</p>

<p>The long-term trends remain down for stocks, down for commodities, but mixed for currencies and interest rate futures.</p>

<p><strong><u>Stocks</u></strong></p>

<p>The S&amp;P 500 headed lower this week and has been unable to break resistance at 2011.75, the 17<sup>th</sup> September high. The long-term trend remains down, and the RSI is still in the bear range, so the focus remains on lower prices, particularly as long as resistance around 2012 holds. The Nasdaq 100 has seen similar price action this week and also looks to be headed lower. From last week on the Dax: &ldquo;With the long-term trend remaining down and the RSI still in the bear range, further weakness towards the key low on the 24<sup>th</sup> August may be seen. Ultimately, we should see significant new lows below that key low.&rdquo; The Dax came within 20-odd points of testing the low from the 24<sup>th</sup> August but support held. We can look for another test of that low in the coming days. The Nikkei also tested its 24<sup>th</sup> August low as expected. Support held, and a decent rally followed on Friday. We can still look for another test of that key low soon. As before, if that low is broken, we may see a swift 600-odd point decline down to the next level of structural support around the late-2014 lows.</p>

<p><strong><u>Commodities</u></strong></p>

<p>Gold broke through its trendline that has held since January but was unable to progress. Similarly, the RSI tested the 60 level and but for a brief intra-day break, was also unable to break through decisively and price has since moved back below the trendline and RSI back below 60. This suggests that these two levels are key for this market in the near term. A decisive break of both would be short-term bullish, but if both levels hold we can look for further weakness back towards the recent lows. The long-term trend remains down. Rough Rice made a new high for the year and continues to head towards our next target around 13.50. The trend is clearly up, and the RSI remains in the bull range.</p>

<p><strong><u>Currencies</u></strong></p>

<p>The dollar index remains range bound and has been effectively consolidating since the March 2015 peak. The range is quite wide, between the 101.43 high and the 92.77 low. The breach of major support back in March, and the series of lower lows and lower highs does have the trend pointed lower. The RSI is also in the bear range. However, it won&rsquo;t take much further rally from Friday&rsquo;s close to change that. For now, sideways is the order of the day, and that is also keeping many other currency markets in a range, particular EUR/USD, which is a near perfect inversion of the dollar index.<br />
<br />
Another key currency market right now is USD/JPY due to its very high correlation to the Nikkei and other stock indexes. Once USD/JPY break from its current sideways range such a move could trigger some large moves in multiple markets across different asset classes.</p>

<p><strong><u>Interest rate futures</u></strong></p>

<p>Interest rate futures have had a mixed week, with strength seen through Thursday before some weakness on Friday. The 3 Month Eurodollar broke to a new high on Thursday but pulled back on Friday, and we saw similar price action in the Long Gilt. These two remain the strongest in this sector, followed by the 5 &amp; 10 Year T-notes. The trend for the sector is up with the exception of the long bond, which remains in a long-term downtrend.</p>

<p>Good trading</p>

<p>Phil Seaton<br />
<strong>LS Trader</strong></p>

Weekly Update 20 September 2015 – LS Trader

The past week was another volatile week in many markets and also was the week of the much-anticipated 2-day FOMC where many expected to see the Fed raise interest rates for the first time in nine years. The Fed did not raise rates. As often occurs on and around the Fed meeting, there was significant short-term volatility. Next week may see a return to more normal, stable markets now that the meeting is out of the way.

The long-term trends have not been affected by the recent volatility, so we will likely see many of these trends resume over the next few weeks

Stocks

The S&P 500 made a spike high on Thursday and took out short-term resistance. The spike high coincided almost exactly with the resistance level formed at the level that had previously provided support for the market for several months. As before, as long as that major resistance level holds we can look for lower prices. Both the long-term trend and the RSI remain bearish.

The Nasdaq 100 has of course been more bullish, having already moved back above the aforementioned resistance level. The Nasdaq 100 may rally higher to test the underside of the trendline up from the October 2014 low, which currently dissects that market at 4510.

The Dax ended the week lower following a large down day on Friday, which took the Dax to its lowest level this month. With the long-term trend remaining down and the RSI still in the bear range, further weakness towards the key low on the 24th August may be seen. Ultimately, we should see significant new lows below that key low.

The Nikkei also reversed on Thursday and Friday, and it too looks as though it will fall to at least test its 24th August low. If that low is broken, we may see a swift 600-odd point decline down to the next level of structural support around the late- 2014 lows.

Commodities

Both gold and silver rallied this week, with the latter breaking the trendline that we have mentioned recently. For now the long-term trend in both precious metals remains down but we could see further strength in the near-term. The 60 level on the RSI could be tested this week, and a decisive break would suggest that the counter-trend rally was not yet done. Conversely, if 60 holds we may see a turnaround bank to new lows.

Cotton made a big move lower this week which resulted in a change of long-term trend to down. We may now see further declines towards the January low around 58.67.

Rough Rice also made a bullish move, rallying for four straight days this week to reach its highest level since January. The RSI broke easily through the 60 level, and there is little in the way of resistance on the chart between current prices and the 13.50 area.

Currencies

The currency markets have been choppy of late, and the trends remain mixed. The three commodity-based currencies that have been very weak of late all gained ground this week. The long-term trends are however unaffected, and we may yet see moves to new lows for each of these three currencies.

The dollar index has drifted lower again and remains in a long-term downtrend and with the RSI in the bear range. We may yet see further weakness, but Friday’s candle indicates indecision in the short-term

Interest rate futures

As is usually the case on FOMC meeting days, the interest rate futures markets experienced some volatility. This was particularly the case in the 3 month Eurodollar, which having tested support on Wednesday, put in a large two-day rally and almost recovered to test the August 24th high. Similar moves were seen in other markets in the sector, all of which shot higher on Thursday and Friday. The 30-Year T-Bond had dropped to its lowest level since July before the meeting but then rallied higher. The long-term trends remain mixed in the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 13 September 2015 – LS Trader

The past week was a shortened week due to the Labor Day Holiday in the U.S. on Monday. It has seen mixed trading in many markets with the stock indexes higher and the dollar lower.

This week sees another 2-day FOMC meeting begin on the 17th. This meeting is one that many expect to see the Fed raise interest rates for the first time in nine years. Friday this week is triple witching, which can often be a volatile day.

The long-term trends remain down for stocks and commodities and mixed for the dollar and interest rate futures.

Stocks

Stock indexes had a mixed week but ended higher. The long-term trend remains down for all of the stock indexes. We have written previously about the key levels in the stock markets, which were the prior major support levels. These levels, once broken, were due to act as resistance. In the case of the S&P 500, Nikkei 225 and the Dax this resistance level has held, but the Nasdaq 100 broke it on an intra-day basis. The RSI remains in the bear range for all of the four stock indexes that we trade at LS Trader.

Either way, the price action seen since the low was printed on the 24th August looks corrective and, therefore, is likely a pause before the downtrend resumes. Therefore, unless the resistance levels mentioned above are broken, we can still look for new lows below the 24th August low.

Seasonally we’re in a very weak time of year for stocks. This is often due at least in part to portfolio managers rebalancing their portfolios and clearing out stocks that they don’t want to hold. Subsequently, September is the weakest month of the year for the S&P 500, Dow 30 and Nasdaq dating back to 1950. Whether that plays out this year or not remains to be seen

Commodities

Coffee continues to trend lower, this week making its lowest print since January 2014. Further weakness towards 100, which is the next level of support may be seen. If coffee does fall that far, strong support can be expected as this level has been a support zone for coffee since 2006.

Both gold and silver traded lower this week, but trade is far from convincing. Silver remains below a downward sloping trendline that has remained intact since the May 2015 high. Gold remains below a trendline that has held since January. If that trendline is broken, that would be the first sign that a low was in. The long-term trend remains down for both markets as it also does for copper and palladium.

One of the biggest moves this week came in the lumber market, which looks as though it has found a bottom, at least for the time being. Lumber broke resistance on Tuesday and then rallied sharply higher for the rest of the week. The rally included a gap higher on Friday’s open, which is typically bullish and also saw the RSI move above 60 for the first time since June. This suggests further strength ahead, but it will take considerable further rally for a change of long-term trend.

Rough Rice also made a bullish move, rallying for four straight days this week to reach its highest level since January. The RSI broke easily through the 60 level, and there is little in the way of resistance on the chart between current prices and the 13.50 area.

The energy markets have mostly consolidated this past week. Natural gas has traded in an incredibly tight range for the past three weeks. Watch this market for a breakout and a potentially explosive move. The long-term trend remains down for the whole sector.

Currencies

The past week saw quarterly currency contract expiration, so we rolled from September to December, which is now the front-month contract. The week has seen mostly weakness for the dollar and the dollar index. The long-term trend is currently down for the dollar index, and the RSI remains in the bear range.

The Euro, which is a near perfect inversion of the dollar index, rallied for four days this week but remains in the middle of its recent trading range. The commodity-based currencies all remain in long-term downtrends and are near their respective recent lows. Of these three currencies, the Aussie has been the most bullish this week. However, due to the recent tightening of the range in these currencies, each of them is within range of testing resistance.

Interest rate futures

Interest rate futures continue with mixed trades. There is very little in the way of trend in this sector at present, which is amply highlighted by the RSI hovering around the 50 level. The 3 Month Eurodollar remains the strongest in the sector and is still very much in an uptrend. The trend is also still up for the 5 Year T-note but is down for the longer-term markets in the sector.

Volatility is likely to increase this week in the bond markets due to the FOMC meeting.

Good trading

Phil Seaton

LS Trader

Weekly Update 6 September 2015 – LS Trader

Following the extreme volatility of the two previous weeks, the past week has seen a return towards more normal market conditions. However, volatility in stocks has still been much higher than the rest of the year to date, and there have also been some large moves in the energy markets.

The week ahead is a shortened trading week due to the Labor Day holiday in the U.S. on Monday. Tuesday onwards will see traders and money managers returning to their trading desks following the summer break. This typically leads to a large increase in trading volume and normally sees the volatility due to less liquidity decrease.

Stocks

Stocks have been considerably less volatile this week than what was seen in the previous two weeks. The bear market rally that began at the low on August 24th may have ended this week on Monday’s high. Stocks have since turned lower.

As we mentioned may be the case in last week’s update, the lows that had acted as support for the stock markets did change to become resistance, as support once broken often becomes resistance. This level held on each of the stock indexes that we trade at LS Trader and remains the key resistance level. As long as these resistance levels hold we can continue to look for lower levels.

The long-term trends are down for stocks, and the RSI is in the bear range. This adds to the expectation of lower levels ahead. At a minimum, we should see a test of the August 24th lows in the coming weeks.

The Nikkei is currently the most volatile of the stock indexes at present with the past two weeks featuring near 2000 point daily ranges, and regular daily moves in excess of 1000 points. These are not normal conditions at all. However, the major support low that held the market up for months has since acted as resistance, almost exactly to the point. The outlook for the Nikkei remains bearish while that remains the case.

The Volatility Index Futures (VIX) rose above 30 for the first time since 2011.

Commodities

The energy markets rallied sharply higher on Monday, bringing the downtrends to an end for now in Crude Oil, Brent Crude and Heating Oil. These were all profitable trades for the LS Trader system. However, the longer-term downtrend remains intact, so we view these corrections as bear market rallies and still expect these markets to fall to new lows. Time will tell of course.

The metals markets have been mixed. Silver had closed higher for six straight days before closing lower on Friday. However, the rally could best be described as a market rising in agony as the real bodies were all small, and each has a long higher shadow, which indicates higher prices levels are being rejected. The long-term trend remains down for silver as indeed it does for all the metals we trade.

Copper has been the strongest of these metals this week, rising above resistance, bringing another profitable short trade to an end. However, it looks like that was a corrective rally, and that new lows lie ahead.

Palladium has been in the biggest downtrend of all the metals in recent months, but the last two weeks have seen some strength. However, the market has held below resistance and the RSI has been unable to clear the 50 level and, therefore, remains very much in the bear range.

Currencies

The dollar index edged higher this week as the dollar gained against most of the majors, particularly the commodity-based currencies of Australia and New Zealand, and to a lesser extent against the Canadian dollar. These moves have the dollar at or near its highest level against these currencies for over six years.

The British Pound has continued its steep decline against the dollar, having now closed lower for nine straight days. This weakness has returned Cable to the middle of the trading range that has been in place for 2015. The Euro has also been weak since the high printed on the 24th August and is also roughly in the middle of its recent trading range.

Interest rate futures

Interest rate futures ended the week higher, and the outlook for these markets remains mixed. As before, the long-term trend is still down in the 30 Year T-Bond and the Long Gilts but is up for both the 5 & 10 Year T-Notes and the 3 Month Eurodollar.

Good trading

Phil Seaton

LS Trader