Weekly Update 25 September 2016 – LS Trader

The Nasdaq 100 posted new all-time highs this week, and global stock indexes continue to recover from their recent declines. The dollar has had a mixed week, and the currency markets, along with many commodities and interest rate futures remain in a low volatility, pre-breakout phase. The next few months should see some volatility breakouts and trends on increasing volumes.

Stocks

The Nasdaq 100 broke out to new all-time highs as expected but pulled back to just above the breakout point on Friday.

The S&P 500 has continued its recovery and may test resistance this week, with a possible breakout to new all-time highs to follow. As before, the negative for the bull case in the stock markets is below average volume, which shows a lack of sponsorship from institutional traders. That can change if a breakout is successful as nobody will want to miss out on a potential rally once if the market makes a desire breakout into all-time-high territory.

The Dax has had a similar short-term recovery, but in terms of distance to all-time highs remains significantly off the pace. The down sloping trend line from the 2015 high continues to provide support.

The Nikkei 225 is weaker still and remains in a long-term downtrend. Price is sandwiched between the 50 and 200-day moving averages, and considerable further rally is required for a change of trend, with a breakdown to resume the downtrend slightly more likely at present.

Commodities

With the exception of Natural Gas, the leader of the energy sector at the moment, the remaining energy markets continue to consolidate in the vicinity of their respective 50-day moving averages. The energy sector is an area where the markets are undergoing significant volatility compression, so they are in the pre-breakout phase. A breakout from this current consolidation and volatility compression should yield a decent move in the direction of the breakout.

Orange Juice is one of the few commodity markets that is trending well at present and may have enough left in it to rally further to all-time highs, printed back in March 2012 at 226.95.

The metals markets started to look a bit more positive this week having gone nowhere for the past three months. Gold found support at just above the critical 1305 area and regained its 50-day moving average. Volatility is starting to pick up, and we could see further strength this week, with an upside breakout within range.

Currencies

It’s been another mixed week for the dollar index, which continues to trade sideways along a cluster of flat moving averages, which indicates a total lack of trend for the index at present. The long-term trend for the index remains down, and the RSI is in the bear range. Volatility continues to compress, and a breakout and trend move remains well overdue.

As of Friday’s close, the LS Trader system is flat all the currency markets, which also reflects that lack of trends in this sector at present. However, support and resistance levels in several majors are close to the market, and we could see these levels tested this week.

The British Pound continues to look bearish and macro capital flows remain negative the Pound at quarterly, monthly and weekly chart level. A breakdown through the recent lows on the daily chart could open the door to further significant declines, with a long-term target down at 1.1379, the June 2001 low.

Interest rate futures

Interest rate futures have moved higher this week, and all remain in a long-term uptrend except the 3-month Eurodollar. However, these markets all continue to consolidate at present and volatility is undergoing compression in these markets, too. The markets in this sector have returned to the area of fair value, and there is no directional bias present, so we wait and watch from the sidelines for the next breakout.

Good trading

Phil Seaton

LS Trader

Weekly Update 18 September 2016 – LS Trader

The past week has seen stocks mount a bit of a recovery, but they remain below their recent highs. The Dollar has had a decent week and may be poised to breakout higher against some of the major currencies.

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

Stocks

The Nasdaq 100 is the strongest of the four stock indexes that we trade at LS Trader and has put in quite a strong recovery this week, helped by Apple stock rising to a nine-month high. This rally has taken the Nasdaq 100 within touching distance of resistance and a possible breakout to new all-time highs.

The S&P 500 has been considerably weaker than the Nasdaq and has had a much more muted recovery. The index appears to be finding support around the 100-day moving average.

The Nikkei, which is the weakest of the global stock indexes that we trade, has moved back below its 50 and 200-day moving averages and remains in a long-term downtrend. The RSI has closed a touch below the 40 level, which is bull market support. A decisive move below 40 on the RSI would point to further weakness.

The Dax also finds itself at a key support level and is testing multiple support levels that are closely bunched. These include the 40 level on the RSI, the 200-day moving average, and the top of the downward sloping trend line from the April 2015 high. If all of these levels fail to hold, we should see the psychological round number 10,000 tested.

Commodities

The energy markets have moved lower this week with the exception of Natural Gas and RBOB Gasoline. Both Crude Oil markets are showing persistent weakness and may fall further to test key structural support levels over the next week or so.

Gold has closed lower in seven of the last eight trading days and has closed right on its 100-day moving average. This is seasonally a pretty strong time of year for the yellow metal, but not so this year so far. Price is currently just above a key short-term support level so we may see some strength. Price is also right on a trend line from the December 2015 lows. If that support level fails to hold, further weakness back towards the 200-day moving average, currently at 1271 may follow. This coincides with the low of the Brexit day rally, which was a rally day fuelled by massive volume. This is likely to represent a very high volume footprint which should provide significant support if the market falls that far

Currencies

It’s been a decent week for the Dollar, which has seen strength returning to the market this week, particularly on Friday. The Dollar Index moved through both its 50 and 200-day moving averages on Friday on decent volume and may continue to press higher this week, certainly in the run-up to the Fed meeting, which always has the potential to move the currency markets around. Volatility is trading at around fair value on the Dollar Index, which means that a breakout is due.

The British Pound has moved back below all its moving averages and had a large down day on Friday. The market has effectively consolidated in a sideways range since the 24th June and looks poised for a breakout to new lows. If Dollar strength is seen elsewhere, the Pound is likely to come under further pressure and the 1.28 area may be tested.

Interest rate futures

Interest rate futures remain in a wider trading range that has been in place for several months. Price remains between the 50 and 200-day moving averages on the 5 & 10 Year T-Notes, and the 30 Year T-Bond. The long-term trend in all three markets is up, as it is also for the UK Long Gilt. The trend is down only for the 3-month Eurodollar.

Good trading

Phil Seaton

LS Trader

Weekly Update – 11 September 2016 – LS Trader

The past week was a shortened trading week due to the US Labour Day holiday on Monday. It also delivered what may be the beginning of a change of trading landscape for the next few months following a well overdue move in the stock markets, which broke out of their incredibly narrow, low volume trading range on Friday with significant moves.

Stocks

From last week: “Rather amazingly, the entire trading range for a month and a half has been contained within 50 S&P points. That’s not something that will continue for long, and a volatility breakout beckons.” Volatility picked up right on cue, with a huge move down, certainly by recent standards, on Friday. The breakout to the downside was sufficient to take price through the 50-day moving average and the 40 level on the RSI, which means the RSI has now entered the bear range for the first time since late June.

Of more importance was the volume with which the move occurred. On the S&P 500, average volume has been around the 1.5m mark, but Thursday saw just shy of 3m, and Friday, 4.87m. This will be hard for bulls to overcome. However, the long-term trend is still up, and considerable further weakness will be required before we get a change of long-term trend and a meltdown.

The Nasdaq 100 moved in a very similar fashion, and for now, the trend remains up for both US indexes. The Nikkei, which is still the weakest of the four indexes we trade at LS Trader, remains in a long-term downtrend and may move sharply lower this week having been unable to stay above its 200-day moving average. The Nikkei might open sharply lower on Sunday night

We also wrote last week: “It should be noted that September is the weakest month of the year for stocks based on historical data going back to 1950. That does not mean that this month will be a down month for stocks, only that there has been a historical tendency for weakness during September on average.” It is a month of weakness, as we noted in last week’s update. It’s going to be fascinating to see how the stock markets trade over the next few weeks following Fridays volatility and volume breakout.

Commodities

Crude Oil continues to work a possible head and shoulders bottom pattern on the weekly chart. Whether this resolves itself in a break of the neckline, or as a failure pattern remains to be seen. The long-term trend remains up for the energies market with the exception of RBOB Gasoline.

The metals markets remain mixed, but weakness is evident in the short-term. Copper remains the weakest of the metals and is hovering just above trend-defining support.

Orange Juice completed a breakout to new multi-year highs, rallying through resistance to print its highest price since February 2012.

Currencies

We also wrote last week that patience is still required in the currency markets with the knowledge that once we do get a decisive breakout from this seemingly endless consolidation, either up or down, the resultant breakout should be massive. This breakout has yet to happen, but it’s possible that the significant move in stocks seen on Friday could be the catalyst that takes many other markets out of their long-term consolidations.

The dollar index is currently positioned roughly in the middle of a wide trading range and continues to trade around its 50 and 200-day moving averages. The Euro is in a similar, albeit inverted position. The time duration of the consolidation pattern suggests that the eventual breakouts in these markets will result in some very large moves. For now, we wait for the market to point the way.

Interest rate futures

Interest rate futures have made a breakout of their two months+ consolidation, but as yet without confirming a change of trend. There was quite heavy selling seen on Thursday and Friday, and on above average volume, so there could be further weakness ahead. For now, the long-term trend remains up in the sector for all markets, except for the 3 Month Eurodollar, which completed a change of trend to down a few weeks ago, albeit so far without any follow-through.

Good trading

Phil Seaton

LS Trader

Weekly Update 4 September 2016 – LS Trader

Monday is Labour Day in the US so most markets will be closed, leading to a shortened trading week. Volume and volatility should return to the markets from Tuesday as traders and fund managers return to their trading desks following the summer break. Typically, the next 3-4 months are the best trading months of the year.

Stocks

The S&P 500 dropped to its lowest level since early August on Thursday but had recovered the week’s declines by Friday’s close and remains close to breaking out to a new all-time high. There has been an increase in volume over the past three days, and that may start to increase further over the next few weeks. Rather amazingly, the entire trading range for a month and a half has been contained within 50 S&P points. That’s not something that will continue for long and a volatility breakout beckons.

The position in the Nasdaq 100 is almost identical, although the Nasdaq remains further above its 50-day moving average, and the RSI remains above 60, making the tech index slightly stronger by these technical measures.

The Dax has recovered sufficiently to suggest that it will test its August high this week. The long-term trend remains up here as well, and a move above 60 on the RSI would likely lead to bullish price action and a break of resistance.

Even the Nikkei, which is the only one of the four stock indexes that we trade at LS Trader still in a long-term downtrend, has been displaying strength, this week closing above its 200-day moving average for the first time since April. The RSI has moved decisively above 60 this week, indicating further strength ahead.

It should be noted that September is the weakest month of the year for stocks based on historical data going back to 1950. That does not mean that this month will be a down month for stocks, only that there has been a historical tendency for weakness during September on average.

Commodities

The energy markets continued with weakness that began during the previous week and have all moved back below their long-term moving averages with the exception of Natural Gas, which is by far the strongest market in the sector.

Copper came close to a downside breakout and may resume the long-term downtrend this week. The other metals remain in long-term uptrends in spite of recent weakness.

The overall bias for commodity markets remains to the downside with the vast majority still in long-term downtrends.

Currencies

The currency markets continue with their long consolidation phase, which is amply highlighted by the dollar index trading sideways around a flat 200-day moving average. It’s a similar story in the Euro, and most currency markets remain rangebound. Patience is still required in the currency markets with the knowledge that once we do get a decisive breakout from this seemingly endless consolidation, either up or down, the resultant breakout should be massive.

Interest rate futures

Interest rate futures are also in a consolidation phase which has been in place for the past couple of months. Most markets in this sector are trading sideways in proximity to their respective 50-day moving averages, with the RSI also hovering around 50, indicating no trend. The long-term trend in the sector is still up with the exception of the 3-month Eurodollar, which remains below its 200-day moving average.

Good trading

Phil Seaton

LS Trader