Weekly Update 24 Sep 17 – LS Trader

Moody’s, the ratings agency, cut the UK’s credit rating again on Friday from Aa1 to Aa2 on concerns over Brexit, showing once again how hopelessly out of touch these ratings agencies are. One only needs to go back to the global financial crisis to see the high credit rating given to banks and risky mortgage securities by these ratings agencies to see how little they know.

This happened at the end of a week that had seen the British Pound reach its highest level against the dollar since Brexit, and the UK Long Gilt complete a change of trend to down.

Stocks

The Dax finished higher for the third consecutive week, but momentum is slowing. The weekly chart sees the RSI finding resistance at the 60-level, which is bear market resistance. The daily chart shows lots of small real bodies over the past two weeks, and there is not much ease of upward movement.

The Nasdaq 100 has seen some weakness this week and is testing a support zone and the 50-day moving average. For once, the S&P 500 is holding up better and remains above change of polarity support from prior highs and well above its 50-day MA. The RSI also remains above 60.

Commodities

Brent Crude completed a long-term trend change to up for the first time since April and has now stabilised well above the $50 level, closing on Friday at $56.42 basis the December contract. Light Crude continues to lag and remains in a long-term downtrend. Heating Oil remains the strongest market in the energy sector, making its highest print in over two years this week.

From last week: “The uptrend for metals could be coming to an end, at least for now.” That has been the case as Gold fell back below support and has closed right on its 50-day MA.

Currencies

The British Pound rallied to 1.3695 on Wednesday before pulling back to the close on Friday. The long-term trend remains up and could yet continue higher to our next target at 1.3835. Two things of interest to note with the Pound is that there is a fairly reliable 8.1-year cycle evident on the long-term charts, which bottomed earlier this year, as well as heavy commercial buying from insiders as shown by the Commitments of Traders report (COT). This suggests that whatever negativity there is around the UK and Brexit, ratings downgrades, in the media and elsewhere, the smart money is not buying into the negativity.

The dollar index tested resistance, and the Euro tested support, but both narrowly held on, which keeps the current weak dollar trend intact for now, but both trends are likely to be pressured further this week.

Interest rate futures

Interest rate futures have seen continued weakness this week with the shorter-term markets being the weakest. A change of long-term trend to down looks imminent for the 3-month Eurodollar.

Interest rate futures have been weaker still in the UK, where UK Long Gilts broke long-term support and completed a change of trend to down. This is the first time this market has been in a downtrend since March this year. It’s interesting to note that the change in long-term trend happened two days before the ratings downgrade by Moody’s.

In theory, a lower credit rating means higher government borrowing costs and, therefore higher interest rates, which would put additional downward pressure on Long Gilts. We shall see how the market reacts this week.

Good trading

Phil Seaton

LS Trader

Weekly Update 17 Sep 17 – LS Trader

The past week has seen mixed trading in the markets with the S&P 500 printing new all-time highs as the global bull market in stocks continues. The dollar’s weakness remains intact, but support and resistance levels in the currency markets have both been tested this week. The big currency move came from GBP/USD, where the British Pound rallied to its highest level since Brexit.

Stocks

The S&P 500 printed a new all-time high this week, reaching 2500 for the first time as global stocks remain bullish. The Nasdaq 100 has rallied back to within range of its most recent all-time high, posted on the 1st of September and we may see new highs again this week.

The Dax, which has been the weakest of the four stock indexes that we trade at LS Trader, and so far the only one of the four to complete a change of trend to down, has seen a fairly impressive 70 point rally over the past few weeks. However, this rally appears to be losing momentum right at the 61.8% retracement of the decline from the 20th June all-time high.

Commodities

The metals markets have seen weakness this week. We exited Copper and Palladium for profits as both trades breached support and exited as expected. Gold has pulled back to test support and so far support has held, but it looks likely to be tested again this week, especially since the 60 level on the RSI has been breached. The uptrend for metals could be coming to an end, at least for now.

Currencies

The British Pound shot higher this week following a successful breakout. The rally this week took the Pound to its highest level since Brexit. The RSI rose to 76.7, a level not seen since September 2013. The rally has occurred on well above average volume, but some of that will be due to quarterly contract expiration as September went off the board on Friday and rolled to December. The next target is 1.3835.

The short dollar trade, which has been under a bit of pressure for the past two weeks is just about clinging on. The dollar index was moving close to resistance on Thursday but turned lower once more and is now within range of testing the recent low at 91.15. The Euro has seen almost perfectly inverted trade to the dollar index and bounced off support on Thursday. The long-term trend remains against the dollar.

Interest rate futures

Interest rate futures were weak across the board this week, and the uptrend appears to be over for now. The long-term trend is, however, still up.

The 3-month Eurodollar has seen very bearish price action this week and has seen five consecutive selling days since the doji printed on the 8th. This has taken price below the 50 and 200-day Has and has also seen the RSI drop below the 40 level, which is bull market support, for the first time since early July. This indicates that we may see additional weakness and possibly a change of long-term trend to down over the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 10 September 2017 – LS Trader

It’s been a mixed week in the markets with some pretty decent swings seen in several different markets as volatility continues to increase from very low levels. This was as expected as the light volume period of summer trading is now behind us. We can expect a further uptick in volume and volatility over the coming years as we enter what is often the best trading conditions period of the year.

This Friday is quarterly stock and currency expiration, so these contracts will roll forward from September to December this week.

Stocks

Stocks have shown some weakness this week, and we’re now in what is historically the weakest month of the year for stocks. The Nasdaq 100 began the week lower and closed down for the week, but remains above its 50-day moving average and still clearly in a long-term uptrend. The same can be said for the S&P 500.

The Dax continued its recovery and regained the 50-day MA this week for the first time since July. The long-term trend remains down, and the RSI is in the bear range.

The Nikkei, which has already rolled to the December contract, continues to find support at its 200-day MA. The RSI closed the week slightly below the 40 level. A price close below the 200-day MA, and more importantly, below the August low, would likely have bearish implications.

Commodities

Gold has continued to advance and is now well above the down sloping trend line from the 2011 all-time high. Volatility is getting a bit elevated, and Friday’s candle is an indecision pattern that suggests a pause in the advance. However, the long-term trend is up.

Copper and Palladium both made new highs for the current move before a sharp reversal followed, taking both markets back towards support. The trend for Copper is very likely over for now due to Friday’s long down candle. An almost immediate turn higher when the markets reopen on Sunday night will be required to keep these two trends intact.

Currencies

These comments refer to the September contract, which rolls to December this week. The Dollar Index fell to a new low for the current move on Friday and made its lowest print since January 2015. Friday’s weekly close was the first close below the box range that has been in place for 33 months. This has very bearish longer-term implications for the dollar and gives target projections over 1000 pips below current levels. However, volatility at weekly chart level is at elevated levels, although less so at the daily level, so we may see a bit of a corrective bounce before the long-term downtrend resumes.

Friday did see some bearish one-day candle patterns on a few of the major currencies, including the dollar index. The Australian dollar printed a shooting star with a large upper shadow, which shows the highs being rejected. However, one day does not change a trend, and it was still a closing high for the move. We saw a similarly weak candle in the Euro, but less extreme than the print in the Aussie. The Canadian dollar also gave back some of its gains. However, all the weekly candles were bullish and the long-term trend, which is what we are most concerned with, remains firmly against the dollar.

Interest rate futures

Interest rate futures held above support and went on to rally to new highs for the current move, reaching their highest levels this year. The long-term trend is up across the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 3 September 2017 – LS Trader

Monday is the Labour Day Holiday in the US so the week ahead will be a shortened trading week. The past week was a very active week as multiple markets broke out from trading ranges. This resulted in the LS Trader System entering 14 trades this week, which is far more than average. This is further indication that the markets are awakening from a long period of random rotational sideways trading action. This is likely to continue to be the case as US Traders and fund managers return to their trading desks this week following the summer break. Exciting times ahead!

Stocks

The Nasdaq 100 made a new all-time high on Friday as well as an all-time weekly closing high. Of some concern to the bulls is the doji printed on Friday and the close slightly back below prior resistance. However, the RSI has moved back above the 60 level again, and the trend is unmistakably still up. All time highs are not a bearish characteristic

The S&P 500 lags the Nasdaq 100 but has recovered most of its recent declines with this four-day rally that commenced from just above support. The RSI has ended the week bang on the 60 level, so there are two key hurdles for the market to clear this week.

The Dax is the first and only stock index to complete a change of trend to down so far. However, the break below support was fleeting, and a sharp reversal and rally followed. The market has closed right on fair value, so the week ahead will likely determine whether the market is going to continue its recovery or turn lower from between current levels and the 50-day moving average, which is currently 116 points above Friday’s close.

Commodities

There were several large moves in the commodities markets this week as the energy markets, particularly RBOB Gasoline soared higher, gaining 13.44% for the week in spite of a 1.76% decline on Friday. Heating Oil saw a similar, but not quite so impressive advance.

Metals have also seen some decent moves. Gold completed the upside breakout this week, moving decisively above the double top around 1300 and the long-term downtrend from the July 2011 all-time high. The next target is 1403. Copper continues to grind higher towards our target of 330. Palladium shot higher on Friday with a big 4.81% move and continues to work towards all-time highs at 1090 later this year.

Currencies

The dollar has had a mixed week. The Dollar Index fell to new lows for the current move before reversing higher but remains below resistance. The Euro saw similar, but inverted price action. Thursday and Friday both saw dips back to fair value, but that level is likely to be tested again this week if new dollar strength persists.

Recent dollar weakness has not been evident against the New Zealand Dollar, where dollar strength has set up a head and shoulders top pattern. The neckline was briefly broken last week, and price also dipped below the 200-day MA on Thursday. A break below last week’s lows, particulate on a closing basis would see the pattern and a change of trend to down complete, giving a downside target of 6829.

Interest rate futures

Interest rate futures broke out to the upside on Tuesday but have so far been unable to hold the breakout. The RSI broke above the 60 level but has also dipped back below that key level. This keeps the uptrends under pressure in the near term, but the long-term trend remains up across the board.

Good trading

Phil Seaton

LS Trader