Weekly Update 24 December 2016 – LS Trader

Due to the Christmas Holiday, this week’s update is an abbreviated version. We’d like to wish all our readers a very Happy Christmas.

It’s been another excellent week for the LS Trader System, which has just hit a new all-time high as of the close on Friday 24th December and is up 81.85% this year to date. Note: Past performance is not a guide to future performance. Future results may be higher or lower than past results.

The Dow 30 printed a slight new all-time high but has once again failed to reach the 20,000 level and has continued to trade in an extremely narrow range. This kind of volume and volatility compression is normally the precursor to a large move. If the market can’t break 20,000, it will likely move sharply to the downside. Whichever way this market eventually breaks, the resulting move may be swift. However, it’s important not to read too much into the lack of volume due to the seasonal period and the fact that most traders are in holiday mode.

This is seasonally a very bullish time of year. The oft-mentioned Santa Claus rally runs, based on the data, from the 22nd (last five trading days of the year), through to the first two days in January. The first of those two days has seen the market close flat at 2260, and we did not see new all-time highs this week in the S&P 500, but we did get a slight new high in the Nasdaq 100. If the rally is to materialise next week, last week’s lows need to hold, and the market should grind to new highs. A break of last week’s lows may lead to a move back to the 50 day moving average before the rally resumes next year.

Good trading

Phil Seaton

LS Trader

Weekly Update 18th December 2016 – LS Trader

Stocks posted new all-time highs but have since pulled back slightly. The Fed increased rates as expected this week at the FOMC meeting, and the dollar continues to climb higher. The existing downtrends in metals and interest rate futures remain intact.

It’s been another excellent week for the LS Trader System, which has just hit a new all-time high as of the close on Friday 16th December and is up 76.90%* this year to date.

Stocks

The S&P 500 made new all-time highs again this week, printing 2273 on Tuesday basis the March e-mini contract, before a bit of a pullback as the week progressed. As with our comments last week, the weight of the evidence suggests that prices will continue to head higher for now, but there is little doubt that this trend is mature. How much further upside there is remains to be seen.

The Nasdaq 100 did complete the breakout on Tuesday but has since moved sideways. The Dow 30, which is not a market we trade but is a market of interest, fell just short of the much talked about 20,000 level and may have another go this week.

The RSI on the Dow reached 87.4 on Wednesday, its highest reading since 1996! While that does show that the trend is overextended, it also suggests that this is not the top. There may be a correction, but market tops are usually accompanied by bearish divergence, of which there is none on the Dow at present. This suggests that if and when we do see a correction, we will subsequently see a rally back to new highs.

The Nikkei continues to grind higher, benefiting from a weaker Yen, and may also test the round number 20,000 level. The November 2015 high at 20,060 remains a possible target.

This is seasonally a very bullish time of year. The oft-mentioned Santa Claus rally runs, based on the data, from the 22nd (last five trading days of the year), through to the first two days in January.

Commodities

The crude markets had a highly volatile week having gapped higher at the open to complete the breakout, before reversing lower almost as quickly. Prices mean-reverted to fair value, where the found support and then turned higher once more. The trend for the energy markets remains up.

Gold continues its long-term downtrend and this week fell to its lowest level since February, and there still appears to be room for further declines. Silver also resumed its downtrend and fell to its lowest level since June.

From last week on London Cocoa: “the move is overextended in price and volatility and is, therefore, subject to some sort of correction higher. That does not mean that the market cannot move lower still, but the risk of a reversal increases on a daily basis.” London Cocoa did fall to new lows for the move but then reversed higher as expected, taking the LS Trader system out of a very profitable short trade, banking excellent profits in the process.

Currencies

From last week on the dollar index: “Thursday’s advance was accompanied by a 200% volume day, so we may see the recent high tested again this week.” The recent high was tested and exceeded, and done on large volume, which took the index to its highest level since 2002.

The Euro dropped to a new 13-year low having fallen through the 2015 double bottom between 1.0473 and 1.0490. The decline through support on Wednesday and Thursday was accompanied by 200%+ volume readings, suggesting that the trend is not over.

Interest rate futures

From last week on interest rate futures: “The recent corrective price action has relieved the volatility excess and leaves room for further declines.” Interest rate futures extended their decline this week, posting new lows for the current move. The trend remains down for the sector.

Good trading

Phil Seaton

LS Trader

*Past performance is not a guide to future performance. Future results may be higher or lower than past results

Weekly Update 11 December 2016 – LS Trader

The S&P 500 rose to new all-time highs in what was a fairly volatile week in stocks and currencies. The week ahead sees the two-day FOMC meeting begin on Tuesday, where the Fed have long been expected to raise US interest rates, the anticipation of which has likely been a driver of the recent dollar rally. We may see some heightened volatility around the time of the rate announcement on Wednesday.

Stocks

The S&P 500 briefly dipped below the change of polarity support level that we wrote about in last week’s update (2184), before forming a sharp reversal higher. The market closed higher each day of the week, making three new all-time highs in the process. For once, volume is above average levels, and volatility is in trend mode. The RSI has also, at 77.19, reached its highest level since February 2012, and there is no bearish divergence. The weight of the evidence suggests that prices will continue to head higher for now, but there is little doubt that this trend is mature. How much further upside there is remains to be seen.

The Nasdaq 100 continues to lag the S&P 500 but is now in range of testing its own all-time highs. Volatility is in the breakout phase, and volume is starting to increase, so we may see a breakout this week.

The Dow 30, which is not a market we trade but is a market of interest, is within reach of the 20,000 level that has been talked about for years. Friday’s close basis March E-mini futures was 19,711, just shy of 300 points below the psychological round number.

The Nikkei is in strong trend mode and has this week reached its highest level in almost a year. The psychological round number level of 20,000, just like the Dow, is a possible future target. Regarding structural price targets, the November 2015 high at 20,060 is a possible target.

This Friday is triple witching week.

Commodities

The energy markets fell just short of breaking out to resume the long-term uptrend. Prices may, however, breakout this week.

Gold fell to its lowest level since January and remains in a long-term downtrend. This week’s new lows were once again unconfirmed by Silver, so Gold may still mean revert to fair value, currently at $1197.

London Cocoa, which is not a market that we write about often, continues lower in a waterfall decline. This trade has been extremely profitable for the LS Trader system in a very short period. The downtrend is parabolic, with 12 consecutive daily lower closes. This has the move overextended in price and volatility and is, therefore, subject to some sort of correction higher. That does not mean that the market cannot move lower still, but the risk of a reversal increases on a daily basis.

Currencies

The dollar index did pull back to fair value as expected, and briefly broke support before strength returned. Thursday’s advance was accompanied by a 200% volume day, so we may see the recent high tested again this week.

The Euro had a wild week following a decline to slight new lows followed by a sharp reversal higher. Weakness then returned, and the market has fallen back towards the lows of the box range that has been in place since early 2015. As before, there is a strong zone of support that includes the 2015 double bottom between 1.0473 and 1.0490.

Interest rate futures

Interest rate futures fell to new lows for the current move once again. The recent corrective price action has relieved the volatility excess and leaves room for further declines.

Good trading

Phil Seaton

LS Trader

Weekly Update 4 December 2016 – LS Trader

The past week has seen the S&P 500 print a new all-time high (Wednesday) but fail to press higher. The dollar has also moved lower against several of the majors, and the dollar index is now testing support.

Stocks

From last week: “the continued lack and decline of volume do not bode well for continued advances. The trend remains up but buying volume needs to materialise soon, or this market is likely to be subject to a correction.”

The S&P 500 made a light new all-time high on Wednesday but was unable to move higher. The two down days had above average volume and price has fallen to test the prior resistance level (2184), which should now act as support of the trend is good. A break and close below 2184 would suggest that the market was going to continue to correct lower, at least to the 50-day moving average (currently at 2160).

The Nasdaq 100, having failed once again to make a new high, provides further bearish non-confirmation. A test of the 200-day MA may follow.

Also from last week: “The Dax continues to trade within a 4-month long box range. However, continued failure to break the resistance area could result in a break to the downside. If a market cannot move one way, it is likely to move the other.”

The Dax did break out of the narrow range to the downside as expected and may test its 200-day MA this week. Much may depend on the outcome of the votes in Italy and Australia, and a volatile week can be expected in the Dax this week.

Commodities

It’s possible that we may have seen a short-term top in the dollar, or are close to seeing one. If that proves to be the case, dollar weakness would be supportive of commodity strength. There are signs that some commodity downtrends, such as in precious metals, are late in the trend.

Gold continues to drift to new lows, but weakness has not been confirmed by Silver, which is failing to post new lows. This is bullish non-confirmation, suggesting that the down move may be getting mature. The trend for both precious metals remains down.

Soybean Oil has advanced since completing the head and shoulders pattern, which gives a measured target in the region of the 46.00 level, still some 800+ points above current levels.

The energy markets have had extremely bullish moves this week, led by Heating Oil, which was the first in the complex to complete a breakout. Both Crude Oil markets and RBOB Gasoline could test major resistance this week, with the potential for breakouts. Crude Oil had a 200% volume trading on Wednesday, followed by above average days on Thursday and Friday. The RSI has also broken above 60. The trend for the complex remains up.

Currencies

The dollar index has pulled back in price and momentum, as we had suggested may happen in last week’s update. Volatility has also declined, and price is mean-reverting back to fair value. We will likely see support tested this week.

The Euro has edged higher having found support at the recent lows and continues to trade within a box range that has been in place since early 2015. As before, there is a strong zone of support that includes the 2015 double bottom between 1.0473 and 1.0490.

The British Pound has made a short-term breakout to the upside from an extremely narrow trading range and low volatility environment. The rally has been supported by a break above 60 on the RSI and a couple of above average volume days. Price has also made two consecutive closes above the 50-day moving average. All these factors combined suggest that we may see further strength for the Pound in the near term, possibly to as high as the 200-day MA (currently at 1.3394)over the coming weeks, but the long-term trend remains down.

Interest rate futures

Interest rate futures moved lower this week, falling below the bullish reversal candle that was printed on the prior Friday. The trend for the sector remains down, but with volatility starting to decline, price may mean revert higher.

Good trading

Phil Seaton

LS Trader