Weekly Update 26th March 2016 – LS Trader

The past week was a shortened trading week due to the Good Friday Holiday. Monday is a Bank Holiday in the UK, but US markets will be open as normal.

It has been a good week for the dollar, which has advanced against the major currencies this week. Stocks have moved lower, and commodities remain mixed, but there continue to be signs that the commodity bear market may be reaching an end. Several commodities have already moved into an uptrend, and a handful have a change of long-term trend to up within range.

Stocks

The S&P 500’s bear market rally may finally have run out of steam this week. Having reached its highest level since late December, the S&P 500 rolled over into the long holiday weekend. Based on LS Trader’s proprietary algorithm, the long-term trend is still down for the S&P 500, as indeed it is also for the other stock index markets that we trade.

Similar price action has been seen in the Nasdaq 100, where the price is also above its 200-day moving average. Here the RSI is also above the 60 level, having closed at 61.36. If this trend still has legs, the RSI should find support around the 60 level, and the 200-day moving average should also provide some support. If both of these give way this week, the rally may have already run its course.

The Dax continues to find resistance at the 60 level on the RSI, which suggests that the rally here too is running out of steam and that the market may turn lower again over the coming weeks. Unlike the S&P 500, the Dax has not even rallied sufficiently to test its 200-day moving average.

The Nikkei 225 remains the weakest of the four indexes and the most likely to turn lower first. The Japanese index remains below both its 50 and 200-day moving averages, and the RSI remains in the bear range.

Commodities

Gold moved lower this week and fell below short-term support in the process. We may see further weakness this week that sees the yellow metal test its 50-day moving average, and also the RSI may test the 40 level, which is bull market support. If the long-term focus for gold is correct, we should see the RSI find support around the 40 level and price move back higher again.

Silver spiked to its highest level since October last year but then turned sharply lower, closing back below its 200-day moving average. In spite of the rally seen since the start of the year, the long-term trend is still down for silver.

Currencies

It’s been a good week for the dollar, which has recovered against some of the majors. However, the long-term trend is still against the dollar versus nearly all the major currencies.

The dollar does remain in a long-term uptrend against the Pound, and we may see further weakness for the Pound over the coming week or so. The RSI has been unable to break above the 60 level, and, therefore, remains in the bear trend, so a test of the February low at 1.3840 looks very possible.

Interest rate futures

The long-term trend for interest rate futures remains up. This week has seen the interest rate futures markets consolidate around their respective 50-day moving averages. All the markets in this sector are above their 200-day moving averages, and the RSI in each is above the 40-level, which is bull market support.

Good trading

Phil Seaton

LS Trader

Weekly Update 20 March 2016 – LS Trader

The past week has seen a continuation of the bear market rally in stocks, which has now travelled so far that a change of long-term trend back to up is a possibility over the next few weeks, something that was almost unimaginable only a month ago. Strength in stocks has been accompanied by further dollar weakness and additional commodity market strength. There are further signs that more commodity markets may have put in a long-term bottom, but for now, the long-term trend in commodities remains down overall.

Stocks

From last week on the Dax: “Friday’s close right at the high of the day is bullish and suggests further strength next week, particularly if the RSI breaks the 60 level. If it does, we may see another test of the 10,000 level.” The 60 level held firm on the RSI, but that did not prevent the Dax from reaching the 10,000 level.

However, the Dax has been unable to hold that key psychological level, closing just below it at 9992.5 (basis the June contract). This price action keeps the Dax between its 50 and 200-day moving averages, but more importantly, below 60 on the RSI. This level and the 10,000 level will be the levels to watch this week. For now, the long-term trend remains down.

The S&P 500’s bear market rally continues, with prices this week making a new two and a half month high. Price has now moved well through the 200-day moving average, and the RSI is at a bullish 70.36. As we have written in previous weeks, the rally continues higher on falling volumes, which generally suggests that the rally is based on short covering and is running out of steam. However, there are no signs yet of the rally failing, and with the RSI now at its highest level since late-2104, we may yet see further strength.

Commodities

The bearish divergence that we have mentioned recently on Gold continues to be evident, and this week has seen some volatile trading in the yellow metal. For the first time in a month and a half, Gold has dipped below 60 on the RSI. This key level had previously been providing support, so the market moving back below this level puts a question mark over the rally in the near term. Longer-term, the trend is still very much up, and the focus remains towards higher prices. A break of last week’s lows would indicate additional weakness, possibly back towards the 50-day moving average, currently at 1197.

Interestingly, Silver, which has of late lagged Gold’s advance, moved higher this week, reaching its highest level since October last year. However, the long-term trend remains down, but that may change soon if the RSI can move decisively above the 60 level.

Currencies

The dollar index completed a long-term change of trend to down this week as dollar weakness continues. The index dropped to its lowest level since October last week, and the RSI has fallen well below the 40 level, which is bull market support. With the trend turning negative for the dollar against more major currencies, this dollar weakness could continue. We could see the Euro, Canadian dollar and the Swiss Franc all complete changes of long-term trend this week.

Interest rate futures

Interest rate futures turned higher this week. The long bond found support at the 50-day moving average, and the RSI moved higher from just above the 40 bull market support level, keeping the long-term trend up.

The 5 Year T-Note bounced from just above its 200-day moving average and regained the 50-day MA as well. Additionally, the RSI regained the 40 level.

For now, the long-term trend remains up across the board for interest rate futures, in spite of the considerable weakness seen over the past month since the spike high printed back on the 11th February.

Good trading

Phil Seaton

LS Trader

Weekly Update 13 March 2016 – LS Trader

Stocks and currencies have had an extremely volatile couple of days this week, with large swings up and down in numerous markets. However, none of these moves have changed the long-term trends, which remain down for stocks and mixed for the dollar. The long-term trend is also mostly still down for commodities, but we continue to see strength return to some of the commodity markets.

Stocks

The stock markets have moved higher again this week but have seen some large and volatile swings, particularly on Thursday afternoon following Mario Draghi’s ECB rate announcement that seemed to throw the market a curveball. The Dax, in particular, was highly volatile, with Thursday’s trading range spanning some 602 points, followed by a 4.01% rally on Friday. Friday’s close right at the high of the day is bullish and suggests further strength next week, particularly if the RSI breaks the 60 level. If it does, we may see another test of the 10,000 level.

We wrote last week that the rally in stocks seemed like a bear market rally due to the declining volumes, and with the exception of Thursday’s high volume day, that trend has continued this week. Volume was sharply lower on Friday as the market took out the 2000 level on the S&P 500. The RSI on the S&P 500 remains bullish, holding above the 60 level, but the long-term trend remains down. The presence of a negative reversal setup where price makes a higher low and RSI makes a higher high over the same period indicates that the trend is still down and that we could see a turn lower again

For now, the long-term trend remains down across the sector, and it will still take considerable further rally for that to change.

Note that we are now trading the June contract in stock indexes.

Commodities

Gold rallied to a new high for the current move on Friday before reversing and ending the day lower by 1.7%. Bearish divergence is evident on the chart so we may see a bit more of a correction before the uptrend resumes. For now, the RSI continues to hold above the 60 level, which is bullish.

Copper once again tested its 200-day moving average but was unable to break through. There the same chart formation in Copper that is present on the S&P 500, known as a negative reversal, where we have a new momentum high on the RSI but a lower price dating back to the September high. This is typically very negative and suggests that Copper may turn significantly lower.

Currencies

The currency markets had a hugely volatile week, particularly on Thursday. As mentioned above, that was due to the confusion of the markets following the ECB meeting. It seems that Mario Draghi’s move to negative 0.4% deposit interest rates and an increase in QE from €60 billion per month to €80 billion per month was intended to crash the Euro, which initially it did. Then we saw a huge reversal as the Euro soared higher.

One can only conclude that the markets decided that the ECB had gone ‘all in’ on the move and that there would be nothing else coming in the future, so the Euro strengthened. Whether that turns out to be correct, of course, remains to be seen. Any turn in the tide in financial markets to risk-off will send the Dollar higher and the Euro lower irrespective of what the ECB does.

The Euro’s move was of course inverted on the dollar index, which ultimately ended back below its 200-day moving average and not that far above long-term trend-defining support. For now, the long-term trend remains up for the dollar index, but with the RSI now clearly below bull market support, further weakness may lie ahead.

Interest rate futures

Interest rate futures have continued to decline and this week saw us exit the last of our long trades from this sector, the Long Gilt, which was a very profitable trade in spite us giving back some profits after the market topped out. For now, the long-term trend is up across the sector but continued weakness has taken the markets below their 50-day moving averages and heading towards a test of their 200-day moving averages.

Perhaps more importantly than that, the RSI has fallen through the 40 level, which is bull market support. The failure of this level to hold indicates further weakness ahead and a possible change of long-term trend to down over the coming week or so.

Good trading

Phil Seaton

LS Trader

Weekly Update 6 March 2016 – LS Trader

The past week has seen the move back towards risk-on in the financial markets continue, with stocks and commodities moving higher at the same time as interest rate futures and the dollar have been in decline.

The long-term trends remain down for stocks and down for most commodities, although there are a few exceptions, notably Gold, with Silver not that far behind. The dollar’s weakness has been sufficient to trigger a change of long-term trend in the Aussie dollar, with other currencies still lagging behind. The trend in the currency markets remains mixed. In spite of short-term weakness, all the interest rate futures remain in long-term uptrends.

Stocks

The stock markets have continued their impressive bear market rally this week. The rally is still viewed as a bear market rally and mostly short-covering rather than new buying because volume is decreasing as the rally continues. This indicator suggests that the rally may be mature and might not have that much further to run. Considering that the S&P 500 has rallied above the 200-day moving average this week, it is unlikely that many shorts remain. Further strength will likely require fresh buying, rather than short covering.

So far, only the S&P 500 has been able to move above the 60 level, which is bear market resistance. As yet, that breakthrough has not been decisive, and further strength will be required. The other indexes that we trade at LS Trader are all weaker and are still below that key level. If each of the indexes break above 60, that would indicate further strength, but considerable further rally will still be required for a change of long-term trend. For now, the long-term trend remains down across the sector.

Commodities

Having been in a deep bear market for the past few years, there are signs in some markets that life could be returning to the commodities markets. Gold, in particular, is advancing nicely and is already back in a long-term uptrend. The other metals are still lagging, but strength is evident in Silver, Palladium and Copper. Silver is the next most likely to complete a change of trend to up, with Copper not that far behind. Palladium still has some way to go.

Currencies

The dollar has seen some weakness this week against several currencies. This weakness has already been sufficient to trigger a change of long-term trend in the Australian dollar. The New Zealand dollar could follow suit this week. It’s interesting to note that both of these currencies are commodity-based currencies, which goes to bolster that view that strength is returning to some commodities markets. Such a move is also consistent with a return to risk-on in the financial markets, something that is also being seen in stocks.

In line with overall dollar weakness, the dollar index itself moved lower this week as the RSI once again was unable to break through the 60 level, keeping it in the bear range. This weakness took the index down through its 50-day moving average and further lower to test its 200-day moving average, which has so far held. Next week should be an interesting week for the dollar. It’s also a week that sees quarterly currency expiration, so the March contracts roll forward to June.

Interest rate futures

Interest rate futures have continued their recent weakness this week, which is consistent with the current risk-on mood. However, it should be noted that the long-term trend is still very much up across the sector.

The 10 Year T-Note has fallen to test its 50-day moving average, and the 5 Year T-note has already dropped slightly below it. However, all markets remain considerably above their 200-day moving averages and major trend-defining support. The shorter-term markets in the sector are the weakest and are testing the 40 level on the RSI, which is bull market support.

Good trading

Phil Seaton

LS Trader