Weekly Update 26 Feb 17 – LS Trader

US stocks printed new all-time highs again this week before a slight pullback. Some commodity markets are showing signs of life, but the currency markets continue to consolidate. Interest rate futures are making a counter trend rally, which should terminate over the next few weeks and result in a resumption of the primary trend.

Stocks

The S&P 500 printed a new all-time high again on Thursday but ended the day lower. Further weakness was seen on Friday before a recovery late in the day, which saw the market close up for the eighth consecutive week. The weekly chart has volatility expanding nicely in the trending zone, but volatility has started to decline on the daily chart. This suggests possible weakness in the short-term but keeps the longer-term focus pointed higher. This week’s high RSI print at 80.45 is the highest RSI reading since November 2010; such has been the strength of the recent rally.

The Nasdaq 100 has seen almost identical price and volatility behaviour as the S&P 500. As before, volume in both indexes remains subdued.

Commodities

The energy markets remain within a tight range, with the exception of Natural Gas. The Crude oil market has stayed within a tight $2.50 box range since the first week of the year. This is a classic line market environment. A line market is where you can draw a horizontal line across the chart right through the price action, which effectively means the market has gone nowhere. When these markets do break out of this narrow, low volatility environment, the resulting move is likely to be big.

Gold printed its lowest volatility reading on Wednesday of this week since August last year and then turned higher with price on Thursday and Friday as the market moved decisively above its 200-day moving average. However, the long-term trend is still down.

Silver is still the stronger of the two precious metals and has been trading above its 200-day MA for most of February. Here volatility is much higher than Gold’s, but the advance is being supported by increasing volume. Four days this week have seen above average volume.

Currencies

The currency markets remain in a range bound, two-way rotational market environment. The long-term trend continues to favour the dollar, but short-term dollar weakness persists at this time.

The Australian dollar is one market that could potentially breakout against the dollar. The market is currently right near the top of a rectangle that has been in place for almost a year. So far, all attempts at resistance have resulted in a turn lower.

Interest rate futures

Interest rate futures have moved higher this week, but this is still viewed as a counter trend rally. The long bond remains below various resistance levels that we have mentioned in previous weeks.

The shorter-term 5 & 10 Year T-Notes are looking more bullish as both are just slightly above recent resistance and the RSI has just poked above the 60-level. There has also been a huge increase in volume, much of which is due to the quarterly roll from the expiring March contract to the June contract. There could still be further to run, but the long-term trend is still down for all markets in the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 February 2017 – LS Trader

Monday is Presidents’ Day in the U.S. so many markets will be closed, and it will, therefore, be a shortened trading week.

The stock markets remain bullish, with U.S. indices printing new all-time highs again. Currencies and interest rate futures remain in consolidations, and commodities remain mixed.

Stocks

From last week: “prices at all-time highs are not a bearish characteristic!”. The S&P 500 printed new all-time highs again this week. Seven consecutive up closes ended on Thursday with a slightly down day after the new high at 2351.5 was printed on Wednesday. Volume remains below average, but there was an increase in volume on the weekly chart this week. As noted last week, with the exception of low volume, the technical picture remains bullish at this time.

The Nasdaq 100 has been stronger still, and following a small down day on Thursday printed its own new all-time high on Friday. The Nasdaq 100’s volatility has expanded to its highest reading since August last year according to our proprietary measures. This is not yet at an extreme level, but it’s getting close.

Commodities

The energy markets continue to undergo volatility compression, and volatility has been in decline in the Crude markets since mid-November. Price has stayed within a tight $2.50 box range since the first week of the year. This narrow range, low volatility environment is unlikely to persist too much longer, and we can expect a large move once we get an eventual breakout, whether that is to the upside or downside.

Gold has consolidated this week and continues to trade in the vicinity of a flat 200-day moving average. There is also below average volume in the market and declining volatility, so the recent rally from the mid-December low is not as compelling as many are making out. Further strength is required before a change of long-term trend to up comes within range.

Currencies

The currency markets remain without direction, and rather unusually, we remain flat all the currency markets as there are no trends to be found in the short-term. The long-term trend continues to favour the dollar, but not by much against many currencies. The technicals remain supportive of the dollar uptrend, but not by much.

EUR/USD, which moves inversely to the dollar index, fell to its lowest level in over a month before printing a bullish reversal candle on Wednesday, followed by a bullish candle on Thursday. This took the market back to a test of the 50-day MA, but weakness returned on Friday. I have no interest in trading this market until we get a decisive breakout in either direction. As it stands, the odds still favour that breakout being to the downside. A change of trend breakout to the upside remains out of range.

Interest rate futures

Interest rate futures continue to consolidate around the 50-day MA and above the recent lows. The RSI remains in a range between the 40 and 60 levels, and there is nothing doing in this sector at present. We continue to favour an eventual resolution of this consolidation to the downside, with new lows to follow.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 February 2017 – LS Trader

US stocks hit new all-time highs yet again this week. The dollar has turned around its six-week period of declines and finished the week higher. Strength continues to return to the metals, and interest rate futures continue to consolidate above their recent lows.

Stocks

The S&P 500 hit new all-time highs on Thursday and Friday as the 2300 level was reached and exceeded for the first time. All of the metrics bar one are supportive of the trend. That exception is volume, which continues to print below average levels.

The Nasdaq 100 has now closed higher for six consecutive days, printing a new all-time high in each of the last four days. Volatility is expanding nicely, and the RSI has reached a bullish 74.78, although there is slight bearish divergence. As with the S&P 500, the real negative is the lack of volume fuelling the move, but prices at all-time highs are not a bearish characteristic!

European stock indexes continue to lag the US markets. The Dax is still some 750 points below its all-time high, and the FTSE 100 is just over 100 points below its high.

Commodities

Gold and Silver both continued to advance this week. Gold reached its 200-day moving average on Wednesday before pulling back, but the short-term trend is up. Silver was stronger still and did not see weakness at the end of the week. The long-term trend is still down for both of these metals, but as before, that could change over the coming weeks if we see continue strength.

Copper and Palladium have seen renewed strength this week. Palladium looks to complete the recovery from the sharp decline last month and looks set to test the local top this week. Copper has been stronger still and made a thrust breakout to new highs on almost 200% volume readings. The RSI also broke above 60 on Friday. Friday’s high was the highest print since May 2015 for Copper.

Currencies

The dollar index ended its run of six consecutive down closes and reversed higher with a bullish engulfing pattern on the weekly chart. The RSI remains in the bull range, and the long-term trend is still up for the dollar, so we may yet see new highs in the index.

Of course, we have seen the inverse price action in the Euro, where the long-term trend is still down. Here the RSI remains in the bear range and we may see price head lower towards the January 3rd low.

Interest rate futures

Interest rate futures briefly moved above their 50-day moving averages before finding resistance just below the recent highs and turning lower again. That level was also the 38.2% retracement level of the decline from the November high.

The RSI once again has been unable to break above the 60 level having tested it again this week. This price action keeps the RSI in the bear range. If those resistance levels hold in terms of the January high, Fibonacci levels and 60 on the RSI, we can expect new lows in the not too distant future.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 February 2017 – LS Trader

Stocks were unable to post new all-time highs this week but after weakness early in the week have rallied back to within touching distance of the recent highs. The trend remains up for stocks. The dollar has continued to weaken as seen by a six-week decline in the dollar index. Commodities remain mixed but will benefit from a weaker dollar if it persists.

Stocks

The S&P 500 remained above short-term support and pushed higher on Friday to close just below the all-time highs printed during the prior week. Once again, volume has continued to decline and is not supporting the uptrend.

The Nasdaq 100 did not post new all-time highs this week but also closed just below the recent highs on Friday. Here also we see below average volume and declining volatility. These are not characteristics that support the continued uptrend.

The January stock market barometer says that as goes January, so goes the year. This indicates that when January closes the month higher, as was the case this year, that stock markets finish the year higher with a high probability of accuracy. Of course, that does not mean that the markets will end the year up, it just reveals a tendency that has been seen in the historical data.

Commodities

The commodities markets remain mixed regarding their long-term trends. The energy markets continue to consolidate below the recent high posted at the end of last year. The long-term trends remain up, but price has so far been unable to breakout to confirm the resumption of the uptrend.

Gold and Silver were both higher this week, and both continue to show signs that an intermediate bottom was printed back in December. For now, the long-term trend is down, but that could change over the coming weeks if we see continue strength.

Lean Hogs continues to grind higher and this week reached its highest level since July. Volatility is in the sweet spot for further trend, but the rally is not being supported by volume.

Cotton broke out of a consolidation that lasted for most of January and may now test the August 2016 high at 77.98. London Cocoa broke the December low and printed its lowest price since October 2013.

Currencies

Over the last few weeks, we’ve been writing about the tendency seen in the historical data for EUR/USD to post either its high or low for the year within the month of January. Since the market exceeded the January high on Thursday if this indicator is to hold true this year, then the 1.0374 low printed on the 3rd January will not be violated. This would suggest further strength for the Euro this week and general dollar weakness.

However, the long-term trend is still down for the Euro, and the recent rally has not seen impulsive price action but has instead seen choppy, corrective and overlapping bars on the charts, hardly a characteristic of a strong market.

Weakness is being seen in the dollar against many of the major currencies, and for the first time in a long time, some changes of long-term trend are coming within range, particularly in the commodity-based currencies of Australia, New Zealand and Canada.

This dollar weakness is evident in the dollar index which has now closed lower for six consecutive weeks. Such price action is not bullish and calls into question the prevailing dollar bull market consensus. For now, the long-term trends continue to favour the dollar, but the dollar will need to turn from not much below the recent lows to keep the trend intact.

Interest rate futures

The 50-day moving average remains the controlling moving average for the interest rate futures sector. This moving average continues to provide resistance for this sector, and it has since October last year. The long-term trend remains down, and volume and volatility have remained low during this correction that has been in place since the mid-December lows.

Additionally, the RSI has been unable to break above the 60 level on all rally attempts, which keeps the RSI in the bear range. Therefore, we continue to favour new lows in this sector and a resumption of the downtrend over the coming weeks.

Good trading

Phil Seaton

LS Trader