Weekly Update 26 Nov 17 – LS Trader

The past week was a shortened trading week due to the US Thanksgiving holiday. It is also a week characterised by lighter trading volume. Things should be back to normal this week.

Stocks

From last week: “The S&P 500 also broke support this week but also reversed higher from Wednesday’s lows and may yet breakout to new all-time highs.” The S&P 500 did breakout to new all-time highs this week and finally reached and exceeded our long-standing 2600 target. However, it did so on the lightest trading volume of this year today. That is to be expected during a holiday week and next week will give a stronger indication of the strength of the trend.

The Nasdaq 100 reached the 6400 target written about here in recent weeks from the running wedge, but this rally has also been on pitiful volume. There is also bearish divergence between price and RSI as well as other measures of momentum, so although the trend is up, the rally is weak and long in the tooth.

Commodities

Sugar has continued to trade gradually higher, albeit after a correction since it broke the upper boundary of the near five-month ascending triangle during the prior week. Sugar has a bullish COT profile due to a recent rare record net long position of commercial hedgers, and 16.59 is the next target.

Lumber finally exited, delving our fifth largest winning trade of the year and over 6000 points since we entered back on the 5th September. It was interesting to note that our long-standing target of 46100, mentioned many times in prior weekly updates, was so close to the actual top of 46190.

Currencies

EUR/USD closed above the right shoulder at 1.1921 which we wrote about last week, and this confirms the failure of the head and shoulders top and keeps the long-term uptrend for the Euro intact. We may now see further Euro strength and EUR/USD head higher towards 1.21.

The rally in the dollar index from the September low to the October high was insufficient to give a change of long-term trend to up. The head and shoulders bottom pattern has also been invalidated. As we wrote last week, failed patterns often give stronger signals than successful patterns, and the index remains in a long-term downtrend and may make its way all the way back to the September low.

The British Pound has held support and has consolidated this week above its 50-day MA, keeping the long-term uptrend intact. Price also remains above the 200-day MA. However, the RSI is butting its head against the 60 level, which is bull market resistance. A move above last week’s high accompanied by a decisive move above 60 on the RSI may give rise to higher prices, possibly back to the local top at 1.3695

Interest rate futures

Interest rate futures have continued to consolidate but have been sideways to up this week. The long bond has run into resistance which has held for a couple of months, but price remains above both its 50 and 200-day MAs.

The 3-month Eurodollar future is the weakest market in the sector and this week it fell to its lowest level since June 2015 basis the back-adjusted continuous contract, actually dipping below its 200-week MA in the process.

The trend remains down for interest rate futures, with the shorter-term markets being the weakest.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 Nov 17 – LS Trader

The week ahead will be a shortened trading week due to the US Thanksgiving Holiday on Thursday.

The last week has seen mixed trading in many sectors as the markets consolidate the recent moves. An increase in volatility has been seen in several markets with weakness during the first half of the week being mostly recovered by the end of the week. Such moves have been seen in the energy and stock markets in particular.

Stocks

From last week: “…This can be clearly seen on the Dax and the Nikkei, and the uptrend is certainly under pressure this week in the Dax.” The Dax broke support this week and also fell below the June high which we have mentioned in previous updates. Prior resistance becomes support due to change of polarity. However, on a closing basis, that prior resistance level has held, so we can’t count this as decisively broken as yet, although there has been some chart damage done over the past couple of weeks.

The Nikkei narrowly held support and recovered sharply with a rally from Wednesday’s low, but selling returned on Friday. Support could be tested again this week, but for now, the trend remains up.

The S&P 500 also broke support this week but also reversed higher from Wednesday’s lows and may yet breakout to new all-time highs.

Commodities

The energy markets declined considerably during most of the week but reversed sharply on Friday. Brent crude printed a bull sash reverse pattern on Friday, and Light Crude had a bullish engulfing pattern, which kept both uptrends intact from not far above short-term support. Heating Oil was stronger still and recovered a shallower correction to almost get back to the recent high.

Sugar broke the upper boundary of the near five-month ascending triangle this week. As per previous updates, Sugar has a bullish COT profile due to a recent rare record net long position of commercial hedgers. 16.59 is the next target.

Orange Juice rallied to its highest level since March this year. Interestingly, commercials have also recently had a net long position, accumulating large long positions between June and September.

Currencies

The dollar index’s inverted head and shoulders bottom interpretation was invalidated this week as the market broke back below the neckline. Failed patterns often give stronger signals than successful patterns. The prior breakout above the neckline, which ultimately failed, did not rally sufficiently to give a change of trend for the index, so the index remains in a long-term downtrend.

EUR/USD, which moves inversely to the dollar index, naturally also failed the head and shoulders top with a decisive move back above the neckline. In classical terms, the failure will be confirmed with a close above the right shoulder at 1.1921.

The Australian Dollar completed a change of trend to down this week with a decisive break of support. The New Zealand dollar fell to its lowest level since June 2016 as the long-term downtrend continues.

The British Pound continues to consolidate at a critical level, finding support at the upward sloping trend line from the March low. A decisive break of this line could lead to a change of trend to down and would give an initial target of 1.2662 and possibly all the way back to the March low around 1.2211 further out.

Interest rate futures

Interest rate futures have consolidated this week but remain in long-term downtrends. The shower-term interest rate markets are the weakest, and we remain short.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 November 17 – LS Trader

The past week has been fairly quiet in terms of trading activity but has seen an increase in stock market volatility and what could be described as a possible change in market personality. It seems that we are in the early stages of a much-needed volatility expansion which is beginning to filter into many markets. This is good news for trend followers as expanding volatility leads to an increase in momentum and volume, and ultimately, big trends.

Stocks

From last week: “Overall, the long-term trend for global stocks remains bullish, but there are signs that some markets are getting tired.” Stock indexes made new highs early in the week but then pulled back in a more aggressive pullback than we have been used to seeing. Compare the size of the daily bars this week to a chart of the past few months, and it’s evident that something has changed. This can be clearly seen on the Dax and the Nikkei, and the uptrend is certainly under pressure this week in the Dax.

The Nasdaq 100 saw a wide range day that spanned around 100 points on Thursday, but the decline was bought aggressively, recovering much of the day’s earlier losses. Similar price action was seen in the S&P 500. This price action gives mixed signals, as on the one had, the lows are being bought, but on the other hand, a lot of buying pressure has been used up to remain down on the day.

Commodities

Brent Crude continues to press higher towards our next target at 65.98 with a view towards the longer-term target from the head and shoulders pattern, which projects to 88.00. The weekly chart shows a beautiful upside breakout with expanding volatility. Similar trading activity has been seen in the other energy markets, which all remain bullish. Even Natural Gas, which has been by far the weakest market in this sector for some time, has made some upside progress this week and a change of long-term trend to up is on the horizon.

Lumber reached our long-standing target at 461 this week, printing a new high at 461.9. The 1993 high at 471 becomes the next target. There are some negatives for the move with bearish divergence between price and RSI, declining volatility and volume. However, markets can and do continue to advance under such conditions. As of Friday’s close, we have a huge 8753 points profit on this trade since entering back on the 5th September at 37207.

Corn, which has had incredibly low levels of volatility in recent months declined to its lowest level this year on Thursday and has seen heavy volume this week to accompany the decline. The 2016 low at 314.75 is a possible target.

London Cocoa has been in a downtrend and trading range for a long time, but we could be seeing the early stages of a rally, breakout and change of trend to up. It’s a similar story for Sugar, where we have seen record commercial buying in recent months. The normal position for commercials is short, as they are hedging their products, so when you see record buying and a net long position that is unusual and indicates that they know something that the market does not.

Currencies

The dollar has consolidated against most of the majors for much of the past two weeks. This is highlighted by price action in the Dollar Index where price has moved in a fairly narrow range since the breakout of the head and shoulders bottom on the 26th October. Support has been found twice exactly at the neckline (prior resistance becomes support). Friday’s close is only 18 pips above the neckline so Sunday’s open could quickly determine whether that pattern is going to fail, and prices resume downwards in the direction of the primary trend, or whether we continue to get a counter-trend rally.

The British Pound continues to find support from the trend line we mentioned in last week’s update. A decisive close below that trend line would have bearish implications. For now, the long-term trend remains up.

Interest rate futures

The long-term trend remains down for US and UK interest rate futures as these markets turned lower this week. The 30 Year T-Bond made a new high for the counter-trend rally on Wednesday, but selling followed which took the market back below both its 50 and 200-day moving averages.

The shorter-term markets remain the weakest in the sector, and the LS Trader system remains short both the 5 Year T-note and the 3-Month Eurodollar.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 November 17 – LS Trader

The past week has seen new all-time highs in stocks as the stretched bull market continues to grind higher. The big moves have been seen in the energy sector, where the Crude Oil markets continue to lead the sector higher.

Stocks

The S&P 500 made a new all-time high on Friday at 2585.5 but has still fallen shy of our 2600 target. Price has made very little progress over the last two weeks, and volatility continued to compress. We also have declining volume and bearish divergence between price and RSI, where price made a new high, but RSI did not. This trend is looking old and tired.

The Nasdaq 100 also made a new high, but here too volume and volatility continues to compress. The running wedge still has a target around 6400 which may or may not be reached.

The Nikkei made new 21-year highs basis the continuous back-adjusted chart this week. The RSI has reached 80 on the weekly chart, which is a rare level for that time frame and is one that has not been seen since 2013. Here too we have bearish divergence between price and RSI and volatility remains elevated. The Nikkei is currently our most profitable open position, and we remain long from 20145 with 2480 points profit as at Friday’s close.

From last week on the Dax: “there is bearish divergence between price and RSI, but volatility remains low enough to suggest that there is still upside potential.” The Dax has continued to move higher, in fact, significantly so. Price moved to a new high on Wednesday accompanied by a new high in the RSI, erasing the bearish divergence, and volatility continues to expand and is in the sweet spot. The only negatives are the two indecision candles on Thursday and Friday and continued low volume.

Overall, the long-term trend for global stocks remains bullish, but there are signs that some markets are getting tired.

Commodities

Brent Crude has continued to push sharply higher this week following the decisive breakout above the neckline of an inverted head and shoulders pattern a couple of weeks back. The projected target from the pattern suggests a rally up to the 88.00 area, which is a big move from current prices (Friday closed at 62.07). The next target is 65.98. US Crude has seen similar bullish trade, as has RBOB Gasoline.

Lumber has had a wild ride this week, rally up to 456.50, just shy of our long-standing 461 target. Thursday saw a bearish reversal day followed by a gap lower at the open on Friday which saw further weakness. The bulls stopped the decline at 435, but the real gap from Thursday’s low remains open and may provide resistance this week. Our long Lumber trade is our second most profitable open position, and we remain long from 372.07.

Currencies

The dollar index has taken a little breather this week but remains near the local top. Resistance at the 200-day MA is likely to come into play over the next week or so and we’ll see if there’s enough strength left from the head and shoulders bottom to continue to propel this move higher. For now, the long-term trend is still down for the Index, but that may not remain the case for much longer. The position is, of course, inverted for the Euro.

The dollar is already in a long-term uptrend against the New Zealand Dollar, Japanese Yen and Swiss franc

The British Pound may have formed a major top back in September at $1.3695 basis the back-adjusted continuous contract. Thursday saw a big down day accompanied by a 200%+ volume day which broke the trend line from the March low. A decisive move below the trend line, accompanied by a break of the 40 level on the RSI, which is bull market support, could lead to further weakness with long-term targets at 1.22.

Interest rate futures

Interest rate futures had a bullish counter-trend week but remain in a long-term downtrend. Last week’s rally has taken the 30-year T-Bond to a resistance level and has also seen indecision candles printed on Friday in both the 5 and ten year notes. The long-term trend remains down for US and UK interest rate futures.

Good trading

Phil Seaton

LS Trader