Weekly Update 29 January 2017 – LS Trader

Stocks hit new all-time highs this week, which included the Dow 30 finally hitting the 20,000 level. The trend is up for global stock markets. Most other markets, particularly currencies and interest rate futures continue to consolidate, but a few are in pre-breakout mode.

Stocks

The S&P 500 narrowly held on to short-term support and rallied to new all-time highs. Volume has, however, continued to decline and is not supporting the uptrend.

The Nasdaq 100 also rallied to new all-time highs and remains stronger than the S&P 500. Volatility is on the rise and is in trend mode, but here too, volume is not supporting the market.

The Dow 30 finally broke the 20,000 level and also posted new all-time highs. The prior resistance level, which was tested multiple times, should not act as support if the trend is good. A move back below 20,000, particularly below 19,847 would suggest that price would pull back further.

The trend for all three US indexes mentioned above is up. It is also up for the Dax, Nikkei and FTSE 100. None of these markets are being supported by volume and therefore remain subject to possible weakness.

Commodities

Commodities markets remain mixed with some markets and sectors in long-term uptrends and others in downtrends. The majority, however, are consolidating at present ahead of the next trending campaign.

The question at the moment in the metals markets, particularly in Gold, is whether the mid-December low is a medium to long-term low and whether the rally from there is the first leg up in a new bull campaign. If so, this week’s correction should ultimately prove to be corrective, and all that remains is how much further the correction goes. The low at 1127.20 basis April futures must hold other the long-term bear trend remains intact. The RSI is in the bull range, but the long-term trend is still down until we have price confirmation to the contrary.

Silver has been stronger than Gold this week and could test short-term resistance and the 200-day moving average over the next week or so. The trend, for now, is still down.

Palladium and Copper remain in long-term uptrends. Palladium this week reached its highest level since May 2015 before a sharp reversal halted the uptrend for now. Copper remains just below its 2016 high but could breakout this week. Price closed on Friday right on the 200-week moving average, a very long-term trend indicator that the market has been below for most of the past four years.

Currencies

From last week on EUR/USD: “I expect resistance will be found somewhere between the 38.2 and 50% (1.0868) retracement levels of that decline before the market turns lower once more.”

Volume and volatility continue to decline in EUR/USD. Although the Euro made a slight new high for the current move this week, it remains below resistance. Friday’s close was right on the 50-day moving average, but the trend is still down.

The technicals continue to support lower prices. Price has been unable to break the December high, remains below the 50% retracement of the decline from November, and more importantly, the RSI remains in the bear range and after several attempts has been unable to break the 60 level, bear market resistance. The recent rally has been on below-average volume and has also seen a substantial volatility decline. None of these is consistent with a continuation of the trend higher and all point to a resumption of the downtrend over the coming weeks.

With only two trading days left this month, it’s highly likely that the 1.0347 low print on the 3rd of January will hold. It is more likely that we see a slight new high due to the proximity of the market to last week’s highs. Once the month is over we will have the high and lows for the month, which as covered in recent weeks, have a tendency to be either the high or low for the year. Time will tell.

Interest rate futures

The long-term trend for interest rate futures remains down, and prices ended the week lower. These markets are consolidating between the 38.2% retracement level and the 50-day MA (resistance) and the 50-month MA, which has been the controlling support MA for almost ten years. This consolidation phase may continue for a week or so more yet before the long-term trend resumes.

Good trading

Phil Seaton

LS Trader

Weekly Update 22 January 2017 – LS Trader

The past week has seen Donald Trump inaugurated as the 45th President of the United States. It will be interesting to see what impact that and his policies have on the financial markets over the coming years. As of now, the long-term trends are up for stocks and the dollar, down for interest rate futures, and mixed (but starting to turn bullish) for commodities.

Stocks

The S&P 500 failed to breakout to new all-time highs again and remains in a very tight range. This range is extremely tight and is unsustainable, meaning that a breakout is going to come, one way or the other. The all-time high print remains at 2277 basis the March E-mini contract. The Nasdaq 100 did make a new all-time high on Friday, but both Thursday and Friday’s candles show indecision and rejection of the highs.

The FTSE 100 posted a new all-time high on Monday at 7297, which coincided with the highest ever volatility reading on the daily chart according to our proprietary algorithms. When such extreme readings occur, the odds strongly favour mean reversion to fair value, which is exactly what happened. Fair value was hit almost exactly at Friday’s low.

It will be interesting to see whether this level acts as support, (in long-term uptrends, reversion to fair value is typically where large fund algorithms kick in for them to add to their long position) or whether price slices through as volatility continues to compress. If volatility continues to compress, we may see further price weakness to around the 7000 level. The trend remains up.

Commodities

From last week: “several commodities are showing early bullish signs. Soybean Meal and Soybeans are of particular interest.” Both of these markets made thrust breakouts on high volume and volatility increased on both markets before a bit of weakness at the end of the week. Oats also broke out, crossing the 200-week moving average and reaching its highest level since late 2015.

Corn is also right at the breakout level, closing just above its 200-day moving average for the first time since June. Volume and volatility metrics both support further advance, so we may see the breakout completed next week. If so, we can look for 390 as the next target.

Currencies

The currency markets remain in a random two-way rotational phase and continue to correct against the primary trend, which continues to favour the dollar. The dollar index moved below the 50-day MA, but price remains well above its 200-day MA, and the trend is up. The RSI is flirting with bull market support at the 40 level.

The January effect that we have written about recently, where there is a strong tendency in the historical data for the Euro to make its high or low for the year in January, continues to point to the 1.0347 print on the 3rd of January as the low for the year. However, I remain unconvinced.

The recent corrective rally in EUR/USD has been on declining volume and volatility, which is characteristic of a correction and not a new trend. Price is finding resistance in the region of the 50-day MA and remains below the 38.2% retracement of the decline from the November 2016 spike high. That price level is 1.0751. Friday’s close was 1.0730. Based on the current technical picture displayed by the charts, I expect resistance will be found somewhere between the 38.2 and 50% (1.0868) retracement levels of that decline before the market turns lower once more. We shall see. Either way, there is currently no position in this market.

Interest rate futures

Interest rate futures found resistance as expected in the vicinity of the 50-day moving average, which was almost exactly to the 38.2% retracement of the decline from the November spike high. Having opened the week higher, interest rate futures traded lower throughout the week.

On the 30-Year T-Bond, price remains above the 50-month moving average as it has since July 2007. Currently, that long-term MA is at 147.20. Given that this MA has been the controlling MA for almost ten years, significant support can be expected in that area.

The trend remains down for the sector and price may yet turn lower and resume the downtrend in the next couple of weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 15 January 2017 – LS Trader

For the most part, the markets are undergoing a period of volatility, volume and price compression and are therefore consolidating ahead of the next trending campaign. The long-term trends all remain intact and are still up for stocks and the dollar, and mixed for commodities. Many commodities are showing some early bullish signs, and this is the asset class most likely to deliver a change of long-term trend.

Note that many markets are closed on Monday due to the Martin Luther King Jr. holiday in the US. This week also sees the ECB meet on Thursday and the US Presidential Inauguration on Friday.

Stocks

The S&P 500 failed to breakout to a new all-time high this week and has been moving sideways in a range since the middle of December. Volatility is undergoing compression, and price and volume are following suit.

There has also been significant volatility and price compression in the Dow, which has still been unable to hit the 20,000 level and remains in a very tight range. 19,999.63 remains the all-time high for the Dow.

The Nasdaq 100 is the exception. Having not reached the volatility extremes seen in the S&P 500 and the Dow, the Nasdaq 100 continues to grind higher with a slight increase in volatility. Price made a new all-time high on Friday of 5063.25

The first five trading days of the year early warning system, saw that period close up, which indicates an up year for stocks. We will continue to watch for the January effect in stocks, which says as goes January, so goes the rest of the year. In other words, a bullish January equals a bullish stock market for the year ahead, based on past data.

Commodities

As written above, several commodities are showing early bullish signs. Soybean Meal and Soybeans are of particular interest. Having tested a strong shelf of support, these markets have made a short-term breakout from a narrow trading range on above average volume and may complete upside breakouts and changes of the long-term trend this week.

Currencies

We’ve written recently about the January effect in EUR/USD, which states that there is a strong tendency, according to past data, for this pair to post either its high or low for the year during the month of January. The low of the month posted back on the 3rd was at 1.0374 (March futures). Friday’s close was 1.0668, almost 300 pips above the low.

The past two trading days have also seen the Euro test the 50-day moving average, which it has only closed above once since October last year.

The dollar index, which is the inverse of the Euro, has been undergoing volatility compression and mean reverting to fair value over the past two weeks and now appears to be looking for support. The long-term trend remains up for the dollar, so we may see a resumption of the uptrend soon, which would put pressure on the Euro.

Interest rate futures

Interest rate futures continue to trade in the vicinity of the 50-day moving average, and almost exactly to the 38.2% retracement of the decline from the November spike high. The trend remains down for the sector and price may yet turn lower and resume the downtrend in the next couple of weeks.

Good trading

Phil Seaton

Weekly Update 8 January 2017 – LS Trader

It’s been a wild start to the year, particularly in the currency markets, which have seen some large swings. The week has also seen stocks and interest rate futures make counter trend rallies from their recent lows and has seen the stock markets make new all-time highs.

Stocks

The S&P 500 managed a slight gain for the period of the Santa Claus rally, which spans the last five trading days of the year and the first two trading days of the new year. In that period, the market made a small increase from the close on the 21st December at 2260.5 to 2264.25 at the 4th January close (basis the S&P 500 March 2017 e-mini contract). The rally did continue on Friday and took the S&P 500 to a new all-time high of 2277 before closing at 2271.5, a new all-time closing high.

The Nasdaq 100 also posted a new all-time high and crossed the 5000 level for the first time, closing above the breakout level at 5004 (also basis the March 2017 e-min contract.

For those that watch financial TV and follow the media (two practices that are detrimental!), it has been impossible to avoid talk of the Dow and the 20,000 level. The Dow hit an all-time high of 19,999.63 on Friday, falling just short of the psychological round number. The number in and of itself is meaningless, but a close above that level may trigger some buy orders and see the market push higher.

Interestingly, the US debt clock is also about to hit another similar level, $20 trillion of debt and could so so around the time of Trump’s inauguration on the 20th of this month.

We will continue to watch for the January effect in stocks, which says as goes January, so goes the rest of the year. In other words, a bullish January equals a bullish stock market for the year ahead, based on past data.

There is also the first five trading days of the year early warning system, which works on the same basis. We will have to wait for the close on Monday so see whether that indicates an up or down year.

Commodities

The metals markets showed some strength this week, bringing an end to the downtrends in Gold and Silver, at least for now. Palladium had a hugely bullish week, rallying some 11.36% for the week. An upside breakout in Palladium could be due.

Currencies

We wrote last week about the January effect in EUR/USD, where there is a strong tendency for this market to post either its highest or lowest price of the year in January. We will continue to watch this one closely, as it is such a major FX market. The month began with a new multi-year low followed by a sharp reversal higher. Weakness was seen again on Friday, which turned the market lower from below the 50-day moving average. The long-term trend remains down.

Interest rate futures

Interest rate futures continued their recent counter-trend recovery and broke through resistance this week, bringing some very profitable downtrends to an end. The markets rallied up to the 50-day moving average, and almost exactly to the 38.2% retracement of the decline from the November spike high, found resistance and then turned lower again. The long-term trend for this sector remains down.

Good trading

Phil Seaton

LS Trader

Weekly Update 1 January 2017 – LS Trader

Due to the New Year’s Day holiday, this week’s update is an abbreviated version. We’d like to wish all our readers a very Happy and Prosperous New Year!

We’re still in the seasonal period of the Santa Claus rally, which, according to the data, and not the talking heads on TV, actually runs from the 22nd December this year (last five trading days of the year), through to the first two days in January, which will be Tuesday the 3rd and 4th.

The S&P 500 closed at 2260.5 on the 21st December and closed at 2236.25 on Friday 30th December. Therefore, we must see a rally by Wednesday’s close to at least 2260, or the Santa Rally will have failed this year. When the Santa Rally fails, the following year is often a bear market for stocks or a year where the markets move significantly lower before recovering. The saying on Wall Street is “If Santa Claus should fail to call, bear may come to broad and wall”. Let’s see what happens.

In addition to the Santa rally, we also have the January Barometer, which states that as goes January so goes the rest of the year in stocks. If stocks close up in January, the odds favour a stock rally for the year; if they end lower in January, the year is likely bearish.

There is also the January effect in EUR/USD, where there is a strong tendency for this market to post either its highest or lowest price of the year in January. Given that this is a key market and is largely impacted by the dollar, this will be an interesting pattern to monitor this month to see if it plays out. If it turns out that January is the high of the year in EUR/USD, we can expect this pair to go well below par before 2017 is up.

As ever, seasonalities are only tendencies based on patterns mined from market data. They do not always work, and some are much more reliable than others. It’s good to be aware of such patterns but far better to follow the trends in real-time and trade accordingly.

Good trading

Phil Seaton

LS Trader