Weekly Update 26 March 2017 – LS Trader

The stock markets continued with short-term weakness this week and have not made a new high since the 1st of the month. Tuesday’s wide range bar was the largest daily bar of the year to date, indicating that the short-term trend is down, even though the longer-term picture is still bullish.

Stocks

The stock market rally came to an end this week, at least for the short-term. The S&P 500, Nasdaq 100 and Dax all broke short-term support. Whilst the long-term trend is still clearly up, and new highs are easily within range, additional short-term weakness could lie ahead. The short-term price action indicates indecision, as we have three consecutive doji/spinning top patterns, which shows confusion in the market in the very short term. The 50EMA, currently at 2326 on the S&P 500 e-mini will be the next level to watch.

Commodities

The crude oil markets have drifted lower this week but remain above trend-defining support for now. Crude Oil is trading along its 50-week moving average and may be setting up for a move lower. It’s worth keeping in mind that the February low in 2016 was 26.05, and Friday’s close was 47.97, so a downtrend has plenty of room to run if heavy selling gets underway.

The metals have continued recent strength, led by Palladium, which rallied to a two-year high on Friday. If price can hold above the 800 level, we can look for a no look back rally higher.

Sugar turned lower again following the hammer pattern printed on the 17th March and went lower to print its lowest price since May last year.

Currencies

In last week’s update, we suggested that the Euro may rally to test strong resistance at 1.09. It reached 1.0872 and may yet press higher. This resistance is perhaps a key level on the Euro as it also correlates to medium-term support for the dollar index. The February low at 99.07 will be the level to watch this week. If that level is broken, then we could see additional weakness, but the long-term trend is still up and continues to favour the dollar.

From last week: “The Australian dollar is approaching the upper boundary of a rectangle pattern that has been in place for 11 months.” The 11-month rectangle resistance held firm, and the Aussie fell almost 150 pips. This takes the Aussie back to around the middle of the range, and a breakout to the upside and downside is within range. A break to the downside would be a resumption of the long-term downtrend, whereas an upside breakout would be a change of long-term trend to up. With volatility now down to near its lowest level of the year, the eventual breakout should yield a decent move.

Interest rate futures

Interest rate futures rallied this week and exceeded the key levels that we wrote about last week. Also, the long bond broke the 78.6% retracement, which is generally bullish and is usually followed by a 100% retracement. This is further evidence that the low may be in and that we may be in the early stages of a trend change to up over the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 March 2017 – LS Trader

The past week was a busy week in terms of the calendar, due to the two-day Federal Reserve meeting and triple witching on Friday. Considering that, it was a quiet week in terms of price action.

Stocks

The Nasdaq 100 hit a new all-time high on Thursday before pulling back a bit, but still closing higher for the week. That makes eleven consecutive weeks where the market has closed the week higher than the open.

The S&P 500 once again failed to confirm the Nasdaq’s new high and continues to lag, remaining below its all-time high of 2391.25 printed on the 2nd March. Price has fallen back to approximately the middle of its recent range, from resistance at 2391.25 to support at 2351. The long-term trend for US stock indexes is unquestionably up, even if the internals are weak.

The Dax also posted a new high this week, but this was not an all-time high, just a high for the current move. Thursday’s high was the highest print for the Dax in almost two years, but still a few hundred points shy of its all-time high of 12429.5, which may yet be reached.

Commodities

The metals markets have recovered some of their recent declines this week, led by Copper, which has put in a six-day rally. Palladium has also seen bullish price action. These two metals remain in long-term uptrends, while Gold and Silver remain in downtrends.

The energy markets have also retraced some of their recent declines, and both Crude Oil markets remain in uptrends, for now, but both are working their way down towards trend-defining support levels.

Sugar fell to its lowest level since June last year but printed a large hammer pattern on the daily charts, which may put the downtrend under some pressure next week if we see additional strength.

Currencies

The dollar has seen some weakness this week, with the dollar index falling to its lowest level since the 9th February. The Index remains within a range between the January high and the December low. For now, the long-term trend continues to favour the dollar, but we are seeing weakness in the short-term. The dollar also fell against the Euro, which may be set to move higher to test strong resistance at 1.09.

The British Pound rallied this week and now sits almost exactly in the middle of the trading range that has been in place since October.

The Australian dollar is approaching the upper boundary of a rectangle pattern that has been in place for 11 months. A decisive breakout above the November 2016 high could see a continued rally higher, with projected targets around 700 pips above the November high, which would be circa 8450.

Interest rate futures

Interest rate futures made a counter-trend rally this week. This rally has retraced between the 38.2% and 50% of the prior swing down. If the market is going to fall lower again to test the recent lows, it should do so from at or near to last week’s high. If these markets rally much beyond that point, which is 148.97 on the long bond and 117.32 on the 5-Year T-Note, then the low may be in for a longer period, and we could be going to see a larger retracement of the larger swing down from the November 2016 high.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 March 2017

In last week’s update, we noted: “Many markets remain in a neutral trading environment, but there are signs that multiple markets are beginning to awaken and that we could see some breakouts, volatility and price expansion over the coming weeks.”

A few markets have started to awaken, and we did get some breakouts during this past week, and there are likely more ahead. This week sees the two-day FOMC meeting begin on Tuesday, which generally increases volatility for a day or two.

Stocks

From last week on the S&P 500: “Price went over 3.618 standard deviations above fair value on Wednesday, which is the first time that has happened since October 2016. Volume has since declined with price so it’s possible that Wednesday was a blow off top and that we may see some short-term weakness ahead.”

We did see the expected short-term weakness as price mean reverted to exactly fair value, 2351, before turning higher again. This resulted in the first bear body (the close of the week being lower than the open) being printed on the weekly chart in eight weeks. The higher volume seen on Thursday and Friday is due to the expiration of the March contract and rolling to June, not due to fresh buyers.

That weakness seen in the S&P 500 was less evident in the Nasdaq 100, where although we saw prices pull back during the middle of the week, the market closed up for the week, as it has for every week so far in 2017.

The long-term trend remains up for global stocks. The Nikkei is in a holding pattern just below the 2017 high, with the possibility of a breakout which would take the market to its highest level since 2015. Both the Nikkei and the Dax continue to lag their US counterparts

Commodities

From last week: “The Crude Oil markets remain in an incredibly tight range as volatility continues to compress in a classic line market environment. The average true range in Crude has almost dropped in half since December. When this market eventually breakouts out, the resultant move is likely to be large indeed.”

We’ve been writing about the volatility compression in Crude Oil for several weeks and stated that the resultant move would likely be large. We got the breakout this week and a large three-day move. However, the move has not yet been sufficient to take Crude out of its wider trading range, but that may follow over the coming weeks.

Gold and Silver moved sharply lower this week as the counter-trend rally from the mid-December low continues to unwind. The long-term trend remains down for both precious metals.

Currencies

The currency markets remain in a random, two-way rotational environment with contracting volatility, which is a long-winded way of saying that there is no trend in the short-term. These markets continue to trade mostly sideways, as they have for much of the year to date. There was a reasonably large daily move in the EUR/USD on Friday, with a similar move in the opposite direction in the Dollar Index. The long-term trend remains in favour of the dollar.

Interest rate futures

From last week: “We’ve been writing for weeks that the recent strength seen in interest rate futures is counter-trend and that the long-term downtrend should eventually resume and prices fall below their December lows, and that remains the case in all the U.S. interest rate markets. The 3 Month Eurodollar has already exceeded that low and the longer-term markets may follow suit soon.”

Interest rates continued their decline this week and remain in a long-term downtrend. Friday did see a bit of strength, but with the trend being down, the long-held target of a test of the December lows remains on target.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 March 2017 – LS Trader

Global stocks have seen continued strength this week with multiple indexes making new all-time highs. Many markets remain in a neutral trading environment, but there are signs that multiple markets are beginning to awaken and that we could see some breakouts, volatility and price expansion over the coming weeks.

Stocks

The S&P 500 made a thrust higher on Wednesday to all-time highs on above average volume. Price went over 3.618 standard deviations above fair value on Wednesday, which is the first time that has happened since October 2016. Volume has since declined with price so it’s possible that Wednesday was a blow off top and that we may see some short-term weakness ahead. Volatility remains elevated. This week’s high RSI print at 82.65 is the highest RSI reading since November 2010; such has been the strength of the recent rally.

The Nasdaq 100 also posted a new all-time high bit based on some of our proprietary metrics has been weaker than the S&P 500 and has also undergone quite a substantial volatility decline. There is no doubt that the long-term trend is very much up in both U.S. markets and the longer-term focus remains up, but a corrective pullback of larger magnitude than has been seen since November is due.

It’s not only U.S. markets that are at all-time highs; the FTSE 100 also posted a new all-time high this week, having broken out of a 16+ year consolidation. The German Dax has also shown some strength this week but remains below its April 2015 high of 12429.5.

Commodities

The Crude Oil markets remain in an incredibly tight range as volatility continues to compress in a classic line market environment. The average true range in Crude has almost dropped in half since December. When this market eventually breakouts out, the resultant move is likely to be large indeed.

Gold and Silver’s counter-trend rally came to a sharp halt this week. Monday saw a doji printed on the daily chart and prices traded lower throughout the week, crossing back below the 200-day moving average. The long-term trend remains down for both precious metals.

Currencies

As has been the case for the past couple of months, the currency markets remain in a range bound, two-way rotational random market environment. However, there have been signs that the long-term dollar uptrend may be about to reemerge. The Dollar Index reached its highest level in almost two months on Thursday before a pullback on Friday.

There are similar patterns evident in other currencies, and we continue to expect an eventual resolution in favour of the dollar. As with the Crude Oil markets, the currency markets are also undergoing volatility compression, but in the currency markets, it has lasted even longer. This suggests that the long-term trends have further to run and that we should see the Dollar Index make new highs, and other currencies, such as the Pound and Euro, fall to new lows beneath their January lows.

Interest rate futures

We’ve been writing for weeks that the recent strength seen in interest rate futures is counter-trend and that the long-term downtrend should eventually resume and prices fall below their December lows, and that remains the case in all the U.S. interest rate markets. The 3 Month Eurodollar has already exceeded that low and the longer-term markets may follow suit soon.

The exception to that may be the UK Long Gilts, which have been much stronger than U.S. markets. Gilts this week reached their highest level since October last year and have retraced more than 61.8% of the decline from the August all-time high.

Good trading

Phil Seaton

LS Trader