Weekly Update 31 January 2016 – LS Trader

The past week has seen the FOMC meeting, the Bank of Japan move interest rates to negative, and has seen stocks move higher. The energy markets rallied, but all remain in long-term downtrends. The dollar has had a mixed week but is close to testing a key level against the Swiss Franc, as well as a potentially significant breakout on the dollar index.

Stocks

Stocks have had a second consecutive bullish week, but still finished the month sharply lower than where it began. Based on the historical record known as the January Barometer, down Januarys point to down years, or at the very least, years in which stocks can be purchased later in the year at much lower levels. This indicator has an 87% accuracy since 1950.

From a trading perspective, a more useful indicator is a monthly S&P 500 close either above or below the high and low of January. Based on the current futures data, that means a monthly close above 2043.5 would be considered long-term bullish, and a monthly close below January’s low at 1804.25 would be regarded as bearish. For now, the long-term trend is down in spite of the recent rally, and the RSI is still in the bear range. However, resistance will likely be tested very early this week and Friday’s bullish day suggests strength may continue at the open.

The Dax had a volatile week but has been less bullish than the other stock indexes that we trade at LS Trader, and remains below resistance and still in a downtrend. However, resistance is not far above Friday’s close, and in volatile trading could easily be tested early this week.

The Nikkei, benefitting from the BOJ’s negative interest rate move, already broke resistance last week but remains in a long-term downtrend. The rally brought the trend to an end for now, and the system exited the trade on Friday for a nice 770 point profit, having been short for most of January.

Commodities

The energy markets rallied, with both Brent and Light Crude breaking resistance. Heating Oil and No Leaded Gas also moved higher, but the latter has so far been unable to break resistance.

Metals have once again seen mixed trading. Gold rallied to test its 200-day moving average, which it has been beneath since October but has nonetheless reached its highest price since November. The yellow metal is now in the middle of its trading range.

Lean Hogs moved higher again this week and may continue higher towards age October 2015 high at 75.65 over the coming weeks.

Currencies

The currency markets have been mixed this week with the dollar climbing against some of the majors and declining against others. The big move came in USD/JPY, where the market shot higher on Friday and moved well through both the 50 and 200-day moving averages. The RSI also moved through the 60 level, which suggests further strength ahead.

The dollar did fall against the Canadian dollar, which has continued to decline since its high printed back on the 20th January. This move resulted in the system exiting a very profitable long trade, banking 691 pips in the process.

The dollar index remains in a long-term uptrend, and if the RSI make a decisive move through the 60 level, may rally to test the December high, a level which, if exceeded, could have significant implications for several markets.

Interest rate futures

Interest rate futures all moved higher this week, and the long-term trend is up across the board. The 5 Year T-Note fell just short of its early October high, and that level may be tested this week. The RSI has risen to a bullish 77.07, which is the highest RSI print since January last year.

There is minor bearish divergence in the 30 Year T-Bond, where Friday made a new high in price without a new high on the RSI. That may be negated if Friday’s high is exceeded.

Good trading

Phil Seaton

LS Trader

Weekly Update 24 January 2016 – LS Trader

The past week has delivered some large moves in the markets, particularly in stocks and energies. At present these moves are corrective and have not been sufficient to do any damage to the long-term trend picture, which remains intact.

This week sees the two-day FOMC meeting begin on Tuesday.

Stocks

The S&P 500 briefly pierced its 24th August low but rallied sharply after that. The long-term trend is still very much down, and the RSI is still deeply in the bear range. It’s a long way back to the January open, so unless we see a spectacular rally this week, January will end as a down month, which based on the historical record known as the January Barometer, will point to a down year for stocks.

The Nasdaq 100 remains the strongest of the four stock indexes that we trade at <span style="text-decoration: underline;">LS Trader</span>, and has as yet not completed a change of long-term trend to down, and, therefore, remains in a long-term uptrend. However, in spite of last week&rsquo;s strength from the low of the week, a downside breakout and trend change is still in range, whereas significant rally is required for an upside breakout.

The Nikkei dropped to its lowest level since October 2014, but reversed sharply from the low of the week, which was almost exactly at the level of the 200-week moving average, and has managed to close just above its August 24th low. The long-term trend is still down, and the RSI remains in the bear range.

Commodities

The energy markets have had a rare good week, rallying sharply from their lows and reporting a weekly gain. However, in spite of the rally from Wednesday&rsquo;s lows, all the energy markets with the exception of Natural Gas remain deep in a long-term downtrend and the RSI remains in the bear range in each market.

<p>Gold and Silver continue to trade mostly sideways as they continue to build up for their next big move. For now, the long-term trend in both precious metals is down, as it is also in Copper and Palladium.</p>

<p>Lean Hogs continues to rise, and this week moved further above its 200-day moving average, and the RSI is also back in the bull range. This week see the contract roll forward to April, and we may see the April contract move higher towards the 75 area over the coming weeks.</p>

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

<p>In last week&rsquo;s update, we suggested that the dollar may test August the 24th high against the Yen, and that did happen, with the dollar moving just a few pips above that high. However, the market was unable to push beyond the high and the market reversed sharply lower and tested support, which will likely be tested again early next week.</p>

<p>The British Pound made another multi-year low but has fallen short of our $1.4015 target so far and has subsequently bounced higher. However, the two-day rally has not been overly convincing, and the Pound closed the week lower. The long-term trend is firmly down, and the RSI remains in the bear range. New lows cannot be ruled out as yet in this market.</p>

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

<p>Interest rate futures continued initially with recent strength but saw some weakness in the second half of the week. The long-term trend is now up for the entire sector following the breakout to new highs for the current move in the long bond.</p>

<p>However, the long bond was unable to hold on to early gains, and has, perhaps critically, closed back below prior resistance, which is indicative of a reversal. Unless the long bond can regain last week&rsquo;s highs in the next few days, we will likely see a continuation of the weakness that began in the latter half of the past week.</p>

<p>Good trading</p>

<p>Phil Seaton</p>

Weekly Update 17 January 2016 – LS Trader

The brilliant start to the year for the LS Trader system has continued this week, with several markets making significant moves. This has resulted in the system generating excellent profits after only two trading weeks of the year.

Stocks have continued their decline, as their very poor start to the year continues to get worse. The same goes for the energy markets, which, with Crude Oil moving below $30, are now at twelve-year lows. The dollar has gained against most of the majors and remains in a long-term uptrend overall. Interest rate futures have also rallied and may be headed for a test of their 2015 highs.

Stocks

Stocks have continued sharply lower this week and are now close to testing their August 24th lows. The January Barometer, which states with an 87.7% accuracy ratio that as goes January, so goes the end of the year, cannot be assessed until January ends. However, unless we see a major turnaround over the next two weeks in the stock markets, it’s highly likely that stocks will end the month lower, which points towards a bear market in stocks this year.

However, much more important that any seasonal historical tendency is the current market trend, which is firmly down for all the stock indexes that we trade at LS Trader with the exception of the Nasdaq 100. The Nasdaq 100 has been the strongest index for much of the past year, but even that is calling sharply and is heading for a test of trend-defining support.

The Nikkei, which is the weakest of the four stock indices that we trade at LS Trader, has already fallen below its 24th August low and printed its lowest price since October 2014 this week. The area around last week’s low could represent significant support, which if broken could yield considerable further declines.

Commodities

The energy bear market has continued this week with Crude Oil moving below $30 per barrel. With the exception of Natural Gas, all the energy markets fell to new multi-year lows this week. Crude Oil made its lowest print since late 2003.

Heating Oil dropped to its lowest level since 2004, but RBOB Gasoline is still above its late 2008 low. That low basis the continuous contract is at 0.8210, still some 2000 points below Friday’s close. The RSI has dropped to 29.47, which is a bearish reading, but far from an extreme level. There is still, therefore, further room for decline.

In spite of an increased level of fear in the markets due to declining stock and energy prices, gold has not seen any significant rally and remains in a long-term downtrend, as do the other metals. Palladium and Copper, in particular, have been weak, both falling to multi-year lows.

Currencies

It’s been a good week for the dollar with gains being seen against nearly all the majors. The dollar fell against the Yen to its lowest level since August the 24th, and that level could be seen this week. The dollar also had a mixed week against the Euro, and this kept a lid on gains for the dollar index.

The British Pound saw further weakness this and remains on course for our target, the 2010 low at $1.4015. We will reassess lower targets should that level be reached.

Interest rate futures

The interest rate futures made further gains this week as the long-term uptrend continues for the sector. The long-term trend remains down only for the 30 Year T-Bond, which continues to lag the other markets in the sector. However, a change of trend for the long bond could be seen this week. Whether we see the sector rally further towards their 2015 highs remains to be seen.

Good trading

Phil Seaton

LS Trader

Weekly Update 10 January 2016 – LS Trader

The new trading year got off to a flying start as several markets made some significant moves. Stock indices made their worst start to a year in decades, and in the case of the S&P 500, the worst start ever.

The long-term trends are down for commodities and stocks, up for the dollar against the majority of currencies, and mixed for interest rate futures. If strength continues in the interest rate futures sector this week, we will likely see a change of trend to up for the entire sector.

Stocks

We have covered in recent weeks how the last five trading days of the year and the first two of the New Year form the traditional Santa Claus rally period. We also wrote last week that the markets were going to struggle to reach their rally target. When this happens, the historical records show that when the rally does not materialise, the new trading year is often a bear market. Certainly the year has begun on a very weak note for stock markets.

At LS Trader, although we look at the historical and season tendencies for markets, we never place trades based on this information as it is only a tendency and is not reliable enough to make trading decisions based on it. Subsequently instead of being long as many were, we were short the stock indexes and racked up very quick profits from our short positions this week. The long-term trend is down for three of the four stock indexes that we trade, and is only up still for the Nasdaq 100, where we are currently flat.

Commodities

Commodities have had an eventful week. The energy markets, in particular, have been volatile. Monday saw these markets move sharply higher with a price spike through resistance. They then reversed and moved sharply lower through to Friday, where a small bounce was seen.

The long-term trend is still down for the entire sector, but Natural Gas is currently the strongest having rallied to its highest level since mid-November, moving decisively above its 50-day moving average and also moving through the 60 level on the RSI for the first time since May last year.

Currencies

The dollar had a mixed week, and in spite of gains against some majors, the dollar index ended the week lower.

One of the weakest currencies against the dollar was the British Pound, which contained recent declines and reached and exceeded our downside target of 1.4544. This saw the Pound print at its lowest level against the dollar since mid-2010. The next level of structural support is another 500 pips lower at $1.4015, which was the 2010 low. Whether the Pound declines that far over the coming weeks remains to be seen.

The Japanese Yen continued its recent sharp advance against the dollar, moving well above its 200-day moving average to reach its highest level since August.

Interest rate futures

The interest rate futures sector rallied this week, and the long-term trend remains up for four of the five markets we trade in this sector. The long-term trend remains down only for the weakest market in the sector, the 30 Year T-Bond, and that may change this week if further strength is seen.

All markets in the sector are now above their respective 50 & 200 day moving averages, and the shorter-term markets have seen their RSIs move through the 60 level, returning to the bull range, which is indicative of further gains over the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 3 January 2016 – LS Trader

The past week, which was a shortened trading week due to the New Year’s Day holiday, was another quiet week. This was as expected and is very much the norm for the two-week period around Christmas and New Year. This week ahead should see a significant uptick in trading activity and volume, and several markets are within range of testing key support and resistance levels, so we should see some markets breakout during the first trading week of the year.

As 2016 begins, the long-term trends started the year down for commodities, up for the dollar and mixed for interest rate futures. Stock indexes remain mixed, with two of the global stock indexes we trade currently trading just above critical support.

Stocks

Seasonally, this is a bullish time of year for stock indexes with the last five trading days of the year and the first two of the New Year forming the traditional Santa Claus rally period.

So far there has been no sign of this historical bullishness, and with just two trading days to go for this bullish period, stocks remain lower than when they entered the so-called Santa rally period.

Therefore, a decent rally will be required on Monday and Tuesday, or the Santa rally will have failed to materialise. The historical chart records show that when this rally does not materialise, the new trading year is often a bear market.

The LS Trader system does not place trades based on seasonal historical tendencies, as it focuses on price action and trend. The system is currently flat the stock markets and has been so for the past couple of weeks. That could change this week though as some key support and resistance levels are close to the market and will likely be tested in the coming days.

Commodities

The Crude Oil markets, which have been very bearish of late, ended the week lower but are trading in what must be considered quite a narrow range. Consequently, they are trading between key resistance and support from the recent lows. It’s unlikely that this tight range will continue for much longer, so one of these levels will likely be tested in the coming days. These markets remain very much in long-term downtrends and continue to be very profitable for the LS Trader system, which remains short.

Heating Oil, which has been even weaker, has been more profitable still, and we currently have 3581 points profit on this trade since we entered short back on the 12th November at 1.4820 (last close at 1.1239).

Natural Gas continued with strength this week as expected, and the recent downtrend has ended, at least for now. The long-term trend is still very much down and will be for quite some time yet. The current rally is likely a bear market rally and just a pause in the larger downtrend.

As we begin the new trading year, both Gold and Silver remain in long-term downtrends and are just above key multi-year lows.

Currencies

The dollar displayed a bit of strength this week and moved back above its 50-day moving average. The long-term trend remains up for the index.

The British Pound continues its decline, and this week fell to new lows for the current move and is now at its lowest level since April. The RSI has fallen to a bearish 33.87 and the focus remains lower towards what could potentially be significant support at 1.4544.

The Japanese Yen has rallied against the US dollar and has tested its 200-day moving average this week. The long-term trend still favours the Yen and we could see a bullish breakout this week.

Interest rate futures

Interest rate futures have continued with choppy, rangebound trade. The 30 Year T-Bond finished the week lower and closed right on the 200-day moving average.

The shorter-term interest rate futures markets are weaker still. The 3-month Eurodollar has this week closed below its 200-day moving average for the first time since September 2013, basis the continuous chart.

Good trading

Phil Seaton

LS Trader