Weekly Update 31July 2016 – LS Trader

The past week has seen the dollar reverse lower following the US Federal Reserve meeting and has seen the S&P 500 make a new all-time high, but also continue to trade in a very tight range. Commodities markets have been mixed, and interest rate futures have moved higher. The long-term trends remain as before across all market sectors.

Stocks

The S&P 500 has traded within a very narrow range this week. Trading for the past two weeks has been contained within a very tight 21.5 point range, which historically is around the average daily range in this market. Trading within such a narrow range will not continue for long, and we will likely see a breakout in one direction or the other and an increase in volume soon. The long-term trend is clearly up, with the market holding just below all-time highs, but also just above short-term support. One of these barriers will likely give way this week.

From a seasonal perspective, August has been the worst month of the year for the S&P 500 and the Dow 30 between 1988 and 2014.

By contrast, the Nasdaq 100 rallied almost 70 points this week, exceeding our target of last year’s high at 4716.5 in the process. The market closed the week above this key level, which is typically bullish. The RSI has also risen to 72.62 very much in the bull range. The two negatives are that volume remains below average, and that volatility has reached a level not seen since March 2015.

The Dax managed to break the 60 level on the RSI for the first time in a few months, but there has been no follow through in price, which remains below key resistance. This keeps the long-term trend down for now.

The Nikkei turned lower, falling through the 50-day moving average and remaining in the bear range on the RSI. The long-term trend remains down.

Commodities

Further weakness has been seen in the energy markets, which, with the exception of a very bullish Natural Gas, have continued to decline this week. So far, only RBOB Gasoline is in a long-term downtrend, but other markets in the sector could soon follow suit.

Natural Gas shot higher on Thursday, taking price back above its 200-day moving average, and the September contract now looks poised to break its early July high, and should continue north of the 3.000 level.

Silver, which has been consolidating since its spike high printed back on the 5th July, rallied this week from just above support. This strength keeps the focus higher in the short-term. The RSI fell to test the 60 level and bounced higher, which is typically bullish and suggests 2122.5 will be taken out.

Currencies

The currency markets have had quite a volatile week this week, particularly from midweek onwards, where both the US Federal Reserve and the Bank Of Japan had their respective meetings. Following the meetings, the dollar was mostly weaker. The Yen advanced as the latest round of easing from the BOJ fell short of market expectations.

Dollar weakness this week has seen the dollar index turn lower below levels that would have confirmed a change of long-term trend to up. The long-term trend, therefore, remains down for the dollar index.

The inverse of the dollar index is the Euro, and Dollar weakness resulted in Euro strength this week. The Euro rallied to take out the 50-day moving average and should test the 200-day moving average this week. The long-term trend remains up for the Euro.

Interest rate futures

Interest rate futures moved higher this week, and all markets in the sector have moved or stayed above their respective 50-day moving averages. This keeps the short to medium-term focus higher. All five interest rate futures markets that we trade at LS Trader are all also well above their 200-day moving averages, and the long-term trend remains up across the board.

Good trading

Phil Seaton

LS Trader

Weekly Update 24 July 2016 – LS Trader

The S&P 500 made new all-time highs this week, but the other global stock indexes continue to lag the S&P. The dollar’s recent recovery continues, and we could see some long dollar breakouts this week as the long-term trends look to be in the process of favouring the dollar once more against several of the major currencies.

Stocks

From last week: “Both volatility and momentum are increasing, which suggests that the uptrend will continue. However, the one negative, and it is possibly a significant one, is that volume has been in continual decline as the rally has progressed.”

The S&P 500 printed new all-time highs again this week but only managed to advance 15 points for the week. Momentum is decreasing slightly, and we continue to see lower than average volume go through the market. Volume continues to decline steadily, as it has since the huge volume day on the 24th June. This indicates a lack of sponsorship for the current rally.

The Nasdaq 100 reached its highest level since last year and may yet reach the next resistance level at 4716.5, the 2015 high. This rally also shows shrinking and below average volume, by the RSI is still pushing gradually higher, printing 67.49 on Friday. This week’s RSI high is the highest RSI level since the 1st April.

The Nikkei and the Dax continue to lag their US counterparts, and both remain in long-term downtrends. The Nikkei is still below its 200-day moving average, but the Dax has moved above it this week. The Dax continues to struggle against the 60 level on the RSI, which is bear market resistance, a level that the index has not crossed since May.

Commodities

The energy markets continue to show weakness, lead by RBOB Gasoline, the weakest market in the sector and currently the only market in a long-term downtrend. Crude Oil’s weakness is bringing a change of long-term trend to down within range. The RSI this week broke below bull market support at 40, which indicates lower prices ahead.

The grains markets have continued their recent decline, and both Corn and Wheat have made new lows for the current move. The long-term trend is now mostly down for the grains markets, remaining up only in Soybeans and Soybean Meal, due to their recent massive rallies.

Currencies

Things are starting to look up for the dollar. The dollar index has rallied to its highest level since March, and a change of long-term trend to up is now within range.

A change of long-term trend is also very much within range against the Canadian dollar and the Swiss Franc. The Canadian dollar, in particular, has an excellent set-up which could see a significant move in favour of the US dollar if the breakout is successful.

The British Pound has consolidated this week and remains roughly in the middle of the range between this month’s highs and the 31 year low printed back on the 6th July.

Interest rate futures

Interest rate futures have continued to move lower during the week before closing flat or slightly up by Friday. The 30 Year T-Bond almost tested the 50-day moving average before rallying higher to close the week almost flat. The shorter-term markets did drop slightly below their 50-day moving averages before moving higher. The long-term trend remains up for the entire sector, and the RSI is still in the bull range. We can’t as yet rule out new highs in these markets later in the summer.

Good trading

Phil Seaton

LS Trader

Weekly Update 17 July 2016 – LS Trader

The past week has seen the S&P 500 rally to new all-time highs and has seen the Nasdaq 100 complete a change of long-term trend to up. The week has also seen mixed moves in the currency and commodities markets and also saw a pullback in interest rate futures.

Stocks

From last week: “The S&P 500 rallied to a new high for the current move and made a new all-time high weekly close. From the standpoint of technical analysis, this cannot be bearish.”

We got the expected breakout to new all-time highs in the S&P 500, and the index rallied to print a record high of 2168 basis the September contract on Thursday. Both volatility and momentum are increasing, which suggests that the uptrend will continue. However, the one negative, and it is possibly a significant one, is that volume has been in continual decline as the rally has progressed.

The Nasdaq 100 broke through the April high that we wrote about last week, completing a change of long-term trend to up in the process. The RSI also broke above 60, entering the bull range in the process. The Nasdaq 100 continues to lag the S&P 500 and declining volume is present in this index, too. The long-term trend is now up for both US indexes but remains down for the other two indexes that we trade at LS Trader, the Dax and the Nikkei.

Commodities

Our target for Silver at 21.63 has yet to be reached. All metrics since the spike high on the 5th July have been in decline; volume, volatility and momentum have all pulled back with price. This suggests that there may be some more weakness for this market before the uptrend resumes and the high from the 5th July is exceeded.

Gold, which has remained significantly weaker than Silver, has declined further. Here the RSI has dropped back below 60, printing 54.31 on Friday as opposed to Silver’s print of 72.63. Volume has also contracted and volatility, along with price are almost back to an area of fair value, so we may see Gold and Silver resume their rallies over the next week or so. The long-term trend for both is still very much up.

Currencies

From last week on the British Pound: “Volume has been in decline almost every day since the 24th, which suggests that the selling pressure may be running out of steam and that a corrective rally higher may be due.” The Pound found support from just above the 31-year low and rallied higher as expected, moving back to fair value around 1.35. Friday saw a reversal back lower again, and the long-term trend remains down. Volatility is also declining back to a more reasonable level.

The currency markets, on the whole, are going through a quiet period, and the long-term trends are currently mixed. The dollar index continues to find support at the 200-day moving average but has yet to make a significant move to the upside to lead to a change of long-term trend to up. The RSI continues to test the 60 level, and if that level can be decisively broken then, we may see some movement to the upside and increased volatility, which would likely result in a few more breakouts in the currency markets.

Interest rate futures

From last week: “The spike high printed on the 24th represents considerable resistance, and we may see some weakness in interest rate futures in the near term”. Interest rate futures moved sharply lower this week as expected. The 5 Year T-Note has pulled back to the 50-day moving average but has done so on lower than average volume.

The 10 Year T-Note has followed a similar pattern but had almost a 200% volume day on Friday, which suggests there may be further to go in the pullback before the long-term uptrend resumes. The long-term trend remains up across the sector at present, and quite a large sell-off will be required for that to change.

Good trading

Phil Seaton

LS Trader

Weekly Update 10 July 2016 – LS Trader

The past week has seen the S&P 500 make a new all-time weekly closing high as global stocks have continued their recovery from the Brexit shock. Commodities have had a mixed week, as have currencies. Interest rate futures remain in long-term uptrends with yields falling to record lows.

Stocks

The S&P 500 rallied to a new high for the current move and made a new all-time high weekly close. From the standpoint of technical analysis, this cannot be bearish. Volume has not increased as much as we would like to confirm the breakout, but that could quickly change if the market rallies further to new all-time highs, something that would likely lead to significant short-covering by those trying to call a top in the market.

In terms of the cash S&P 500, the all-time high printed at 2134.72 back on the 22nd May 2015. Friday’s high at 2131.71 is the highest print in the S&P 500 in just under a year. There is an old rule in trading that says never sell stocks on a Monday because Mondays are usually bullish. It will only take a bit of strength on Monday to see new all-time highs. If we do get the breakout, rally to 2150 may swiftly follow, and possibly 2200.

The Nasdaq 100 has also been bullish, having moved further above its 50 and 200-day moving averages. The RSI has closed at 59.47, just a fraction below the key 60 level. If the RSI decisively breaks 60 this week, we should see further strength in price to test the April high at a minimum.

Commodities

Our target for Silver at 21.63 was almost reached this week when we saw a huge spike day on Tuesday that rallied all the way up to 2122.5 before closing near the low of the day. The market has since moved slightly higher, but there are long upper and lower shadows on the daily candles throughout the week, which represents indecision. Silver is the front runner in the precious metals.

The energy markets are starting to look under a bit of pressure. Prices have fallen across the board this week. RBOB Gasoline, which has been the weakest market in the sector having failed to complete a change of trend to up during the February to May rally, has already resumed its long-term downtrend. Natural Gas, which has been the strongest market in recent weeks, also pulled lower but found support from the 200-day moving average.

Currencies

The British Pound fell to a new 30-year low this week as expected and the trend remains down. How much further this market has to go remains to be seen. Volume has been in decline almost every day since the 24th, which suggests that the selling pressure may be running out of steam and that a corrective rally higher may be due.

The dollar overall has had a mixed week, advancing against some of the majors and falling back against the others. This is indicative of the current long-term trend position in the currency markets, which remains mixed.

Interest rate futures

Interest rate futures moved higher this week but with the exception of the 30 Year T-Bond remain below the extreme high printed on the 24th June. The spike high printed on the 24th represents considerable resistance, and we may see some weakness in interest rate futures in the near term. However, once these markets work off their recent excesses, we could see further substantial rally across the board as yields continue to decline to record lows.

It would not surprise me in the least to see yields go much lower than people can imagine over the coming months, which suggests that the long-term rally in this sector is far from done.

Good trading

Phil Seaton

LS Trader

Weekly Update 3 July 2016 – LS Trader

It’s been another volatile week in many markets as the marketplace continues to digest Brexit and what it means for global financial markets. The initial sharp move lower on the 24th saw some follow through on Monday to new lows, before a very strong reversal pattern that retraced a significant percentage of the prior decline. Typically when a retracement reaches more than the 78% level, the recovery continues to reach new highs. That would suggest further strength next week.

Note that US markets are closed on Monday due to the 4th July Independence Day holiday.

Stocks

As mentioned above, stocks continued with weakness at this week’s open before putting in a very sharp reversal. In the case of the FTSE 100, which is not a market that we trade at LS Trader due to its lack of trending characterises, the market completely retraced the prior week’s declines and soared to its highest level since August last year. This is likely a response to market expectations of a rate cut and further QE from the Bank of England over the coming months. From a technical perspective, Thursday’s bullish breakout through the neckline of the inverted head and shoulders pattern suggests further strength towards the 7000 level. In terms of strength and momentum, the FTSE is currently the strongest of the global indices.

Following the FTSE, next up in terms of strength is the S&P 500. The S&P 500 has recovered following a bullish engulfing pattern on Tuesday and could now move higher to test the recent high. The RSI remains bearish but could also rise to test the 60 level if strength continues.

Both the Dax and the Nikkei, the two weakest stock indices of the four we trade at LS Trader, have both moved higher this week, but both remain in long-term downtrends. The Nikkei’s rally this week has been on decreasing volume as the rally has progressed. This indicates a loss of sponsorship for the rally and a turn lower to test the recent low looks likely. The trend remains down, and the RSI is in the bear range.

Commodities

Several commodities markets made decent moves this week. Silver leads the way with a hugely bullish move since Tuesday’s low. We now target a crucial swing high printed two years ago at 21.63. This rally has been accompanied by rising volume, which is bullish. Silver is now the lead market in the precious metals, with Gold lagging considerably.

Coffee’s bull trend got back underway after a bit of weakness seen during the previous week and at the beginning of this week. A three-bar bullish reversal pattern completed on Tuesday and the market pressed higher to reach its highest level in almost a year. We may yet see further strength to 160.

The grains markets have seen continued weakness with Rough Rice and Wheat breaking down. Wheat has fallen to its lowest level in 6 years and is just above a critical support level. Corn, which has collapsed in recent weeks is also set to test a critical support level and may complete a change of trend to down this week.

Currencies

The currency markets have seen mixed trading this week. For the most part, some of the moves seen on the 24th June have been at least partially retraced. This has resulted in a bit of weakness in the dollar index, which has fallen back to close right on its 200-day moving average.

The British Pound fell to a new 30-year low on Monday but has consolidated since. A new test of those key lows looks likely this week.

Interest rate futures

Interest rate futures soared higher this week as yields fell to record lows. Several markets in the sector pushed to extreme levels and printed potential reversal candles with long upper shadows, which indicates rejection of the highs in the short term. This could lead to a mean reversion lower over the next few days, but the long-term trends are very much intact, and we could see significantly higher prices over the next few months.

Good trading

Phil Seaton

LS Trader