Weekly Update 26 June 2016 – LS Trader

The EU Referendum delivered a shock to the financial markets, and we saw on Friday one of the most volatile days ever seen. Volatility will likely continue this week, particularly in currencies, stock indices and interest rate futures, but will not likely continue at such elevated levels as were seen on Friday. When volatility reaches extremes, it rarely lasts for an extended period.

Many markets moved on huge volume. When such high volumes are seen it is usually either at the start of the next move or indicates exhaustion at the end of a move. Price action this week may give us an indication as to whether Friday’s moves were overdone hysteria or the start of much deeper trend moves.

Stocks

The S&P 500 rallied to new highs as markets had priced in a Remain win and the risk-on rally got underway. What then followed was a massive reversal, taking 120 points off the S&P 500 at one stage, before the market rallied somewhat to close at 2018, just a couple of points above its 200-day moving average. Incredibly, that one-day reversal engulfed the price action of the past three months.

The Nasdaq 100 was also extremely bearish, closing well below its 200-day moving average and right on a support line from the May lows. There is an enormous potential head and shoulders top in the process of being formed that could play out over the coming months.

The Dax, which had rallied through to Thursday’s close, put in a massive reversal having gapped lower hundreds of points at the open. At one point, the Dax was almost 1200 points lower than its high of the day. These are not moves to get in front of, and we can expect further wild swings this week.

Commodities

Gold had a huge turnaround on Friday, having earlier drifted down through short-term support. Friday’s recovery from the lows was a massive one-day rally that took the market its highest level since March 2014. However, the was quite a firm rejection of the highs and a $40 pullback followed. Silver followed suit but also experienced a significant pullback following the strong rally. The trend remains up for both metals.

The biggest trends of the year to date, Soybeans and Soybean Meal, which resulted in the most profitable trades in 2016 for the LS Trader system, both came to an end this week. Soybean Meal broke support and continued lower to test its 50-day moving average, and we saw very similar price action in Soybeans.

Currencies

Huge moves have been seen in the currency markets. In last week’s update, we said to expect volatility to be at least two to three times higher than normal levels and also stated to look for 500+ pip swings in either direction on a daily basis. As it turned out, that was conservative!

The British Pound broke the 30-year support level on Friday before bouncing sharply higher. The price action on Friday alone engulfed the entire trading year to date.

The Euro also had a large reversal day but not on the same scale as the Pound. Here the Euro reversed from its high of the day at 1.1455 down through both its 50 and 200-day moving averages, through the May low and on down to 1.0947. This move included a break of the trend line from the December 2015 low. For now, the long-term trend is still up for the Euro. The RSI narrowly held the 40 level as well, but this could all change during the week ahead.

Interest rate futures

From last week: “We could see some swings in interest rate markets, particularly in the UK Long Gilt as the EU Referendum draws near.”

The interest rate futures delivered some monstrous moves, even larger than expected. The Long Gilt, which represented a high-risk trade due to it not being a 24-hour market, gapped from Thursday’s close of 123.70 to Friday’s open at 127.02. Anyone trading this market was exposed to unnecessary risk. We went into the second-half of the week flat Long Gilts for this very reason.

Very large moves were also seen in the US interest rate markets, which all rallied to significantly new highs before pulling back into Friday’s close. The trend remains up across the sector. Yields could yet fall to much lower levels as the sector rallies to new highs. Prices could go higher over the coming months, and yields fall lower than anyone can imagine. Let’s see what happens.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 June 2016 – LS Trader

The past week has seen some significant moves in numerous markets, but the focus this week will shift towards Thursday’s EU Referendum. We saw another shift late this week back in favour of the Remain camp, but that could still change.

Price movements in GBP/USD give an excellent indication towards the current sentiment and expected outcome, with Pound strength pointing to a Remain victory, and weakness pointing towards Brexit. We could see several wide swings in this and other current markets this week as the markets attempt to assess the likely outcome.

Stocks

Our single long stock index position, long S&P 500 was exited as expected this week. The S&P 500 is the only one of four stock indexes that we trade that remains in a long-term uptrend. The other three all remain in downtrends, and each moved lower this week.

The RSI on both the Dax and the Nikkei broke the 40 level this week, which suggests further weakness once the corrective bounce that began on Thursday runs its course.

The Nasdaq 100 closed below its 200-day moving average on Friday, and the RSI also broke the 40 level. We may see additional weakness over the next few days towards the next level of support at the May lows.

Commodities

Soybeans came within a hair of ending its current highly profitable trade but was saved by buyers returning to the market at Thursday’s low. Follow through was seen on Friday, which printed a bullish engulfing pattern. This makes Thursday’s low a key level for the bulls. If it holds, we may yet see a rally to new highs and possibly as high as the 1260 area.

Very similar price action was seen in our biggest winning trade of the year to date, Soybean Meal, which also narrowly held on to support, which kept the trend alive.

Sugar had another volatile week, which included a wide induction bar on Thursday, before closing the week up by 6 cents. We continue to target the 21.00 level, but a decline in volume shows that the up move is losing sponsorship at current levels. Volatility has also declined slightly, although remaining above fair value.

Currencies

All eyes will be on GBP/USD this week as the EU Referendum nears. There was a sharp turn in favour of the Pound from Thursday’s low, where a 398 pip rally followed from just three pips above support. The outcome of the Referendum could be good for a swift 500 pip move, up in the event of remain or down in the case of leave.

One of this week’s biggest movers was the Yen, which rose to its highest level against the dollar since August 2014. The dollar index has consolidated this week, as it trades around its 50-day moving average. The long-term trend remains down for the dollar index as it does for the dollar against most of the majors. The May low on the index remains a key level.

Interest rate futures

From last week; “The long bond rallied to and exceeded the 168.09 high and may now continue higher to our next target of 171.81.” We saw further rally this week to 171.21, 60 points shy of our next target. Seeing was evident on Thursday with some follow through on Friday so we may see additional weakness this week, possibly back to top/bottom support from the February high. If support there is broken then we could see a deeper correction and the top may be in.

We could see some swings in interest rate markets, particularly in the UK Long Gilt as the EU Referendum draws near. Gilts saw yields fall to new record lows this week. For now, the long-term trend is very much up across the sector, and it will take considerable weakness for that to change.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 June 2016 – LS Trader

The past week has seen some big moves in commodities and interest rate futures but has also seen mixed trading in the currency and stock markets.

The long-term trends continue to turn bullish for commodities, although there are still numerous commodity markets in long-term downtrends. The long-term trend is also up for interest rate futures but is down for the dollar and the stock markets on the whole.

Stocks

The S&P 500 rallied to a new high of 2110.75 basis September futures but has so far been unable to press higher. Thursday and Friday saw lower prices accompanied by significant volume, which suggests that the uptrend will come under further pressure next week.

The other three stock indices that we trade at LS Trader have all seen weakness. These three indexes remain in long-term downtrends and could breakout to the downside in the coming days and weeks.

Commodities

There have been some big moves in the commodities markets this week. Soybeans rallied to a new high for the current move, but as with the previous Friday’s candle, showed significant selling to end the day near the low of the day. Soybean Meal was weaker than beans this week having been unable to make a new high. Price has actually consolidated this week but has seen some large daily swings. The long-term trend remains up for both of these markets, and the RSI is still very much in the bull range. There is a bearish divergence on both charts which shows a loss of momentum, but that does not necessarily mean that the trend is over, merely that we may be due a correction before seeing higher prices.

Sugar moved higher again this week in relatively volatile trade, and we remain focussed on our next target at the 21.00 area over the coming months. The RSI printed 80.88 on Thursday, its highest print since October 2010. However, there is no bearish divergence for the current move as the new momentum high was accompanied by a new high in price. Volume has also been high as the rally has continued, and we have seen six consecutive high volume days before a decline on Friday.

The energy markets had rallied to their highest price levels this year before pulling back towards the end of the week. Crude Oil closed just above its 200-day moving average, a level that will likely be tested this week.

Natural Gas made a significant rally this week, testing its 200-day moving average for the first time since November 2014. A change of trend to up is within range. Thursday’s RSI print of 73.40 was its highest since January 2014.

Currencies

The currency markets have had a very mixed week which saw continued dollar weakness through the first half of the week followed by a recovery on Thursday and Friday. The dollar index printed a bullish engulfing pattern on Thursday and had had follow through to the upside, with the 50-day moving average being tested on Friday. The long-term trend remains down for the dollar, and the RSI is still in the bear range.

The big moves came in NZD/USD and GBP/USD. The kiwi gapped higher at Thursday’s open to reach its highest level in just over a year before pulling back on Friday.

Cable had a volatile week with large price swings in both directions. Friday’s low was a hard retest of the neckline of the head and shoulders bottom printed easier this year. The neckline was broken to the upside back in April, and the price has held above the neckline since. Friday’s weakness has seen the RSI test the 40 level, which along with Friday’s low will be a key level next week. The long-term trend is still down.

Interest rate futures

From last week; “The long-term trend is up across the board for interest rate futures, and we could see further breakouts this week.” The interest rate futures sector rallied as expected.

Also from last week: “The long bond …may now move higher to test the February spike high at 168.09. Based on the head and shoulder bottom pattern, where the neckline was broken on Friday, the target could run as far as 171.81.” The long bond rallied to and exceeded the 168.09 high and may now continue higher to our next target of 171.81.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 June 2016 – LS Trader

The past week has seen the dollar turn sharply lower and has seen numerous commodity markets move higher. The S&P 500 tested its recent high but has so far been unable to break through. Interest rate futures look to be resuming their long-term uptrends and may breakout to new highs for the year soon.

Stocks

In last week’s update, we suggested that the S&P 500 may test its recent high, and it did, but has so far been unable to break through. As before, volume remains low and has been in decline since March. However, there is no question that the trend is up for the S&P 500 and a decisive breakout, particularly above 2120 would likely lead to short-covering and fresh buying, so as unlikely as it may seem, there is potential for a rally from current levels.

As before, the long-term trend for the other three stock indices that we trade at LS Trader remains down, with both the Dax and the Nikkei trading lower this week. The Nasdaq 100 ended the week higher and is within the range of a change of trend to up. A breakout above the April high would negate the possible broadening top formation that we have written about here for several weeks.

Commodities

Several commodities are still moving higher. This week has seen both Soybean Meal and Soybeans move to new highs for the current move, and both continue to clock up huge gains for the LS Trader system. With Friday’s close of 414.30, gains on Soybean Meal are now almost 1200 points since we entered at 297.50 back on the 14th April.

The short-term position is a little mixed on both these Soybean markets, with a big up day on Thursday confirmed by decent volume, followed by a bearish day on Friday, where the large upper tail indicates that sellers took control of the market. However, the long-term trend is unquestionably still up, and considerable further weakness will be required in both markets for that to change.

Longer-term, both of these markets could move significantly higher over the coming months. Let’s keep in mind that only two years ago we saw prints of 500 on Soybean Meal and 1500 on Soybeans, still a long way above current prices. So, whereas it may be correct to say in the short-term that these moves may be a little over-extended, a longer-term view shows that there is still potential for much higher prices.

This week has seen a breakout in Lean Hogs, with three consecutive large up days, all confined by decent volume. Additionally, the RSI has broken through the 60 level, re-entering the bull range. We’re looking for a further advance towards the next resistance level at 88.57 and also 88.73, where the 200-week moving average currently sits.

Sugar moved sharply higher this week, with two big up days confirmed by heavy volume. As before, we continue to follow the 14-month head and shoulders bottom that is evident on the weekly charts, which suggests further advance towards the 21.00 area over the coming months.

Currencies

It’s been a big week in the current markets with a sharp reversal seen against the dollar. It appears that the counter-trend move of dollar strength seen since the key reversal day back on the 3rd May could have run its course. Heavy selling, particularly on Friday, which printed a long down day with heavy volume against most of the majors suggests further dollar weakness and a resumption of the long-term downtrend remains ahead.

Interest rate futures

The 30 Year T-Bond and Long Gilt both broke higher from their consolidations that we wrote about last week: “a breakout from this consolidation should yield a decent move in the direction of the eventual breakout.”

The long bond broke out through the top of the consolidation pattern and may now move higher to test the February spike high at 168.09. Based on the head and shoulder bottom pattern, where the neckline was broken on Friday, the target could run as far as 171.81, over 500 points above Friday’s close.

The UK Long Gilt broke out to its highest level since 2011. The long-term trend is up across the board for interest rate futures, and we could see further breakouts this week.

Good trading

Phil Seaton

LS Trader