Weekly Update – 31 December 2017 – LS Trader

We’d like to wish all our readers a very Happy and Prosperous New Year and a great year in the markets!

2018 is likely to be a very good year for traders as volatility continues to expand. Given that this year has been characterised by long periods of consolidation and low volatility, there’s a strong expectation that 2018 will deliver some monster moves.

Stocks

The Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year started on Thursday 21st December and continues through to the first two trading days of January, which this year will be Tuesday 2nd and Wednesday 3rd. So far, largely due to the wide range day on Friday and lower close in the S&P 500, the markets are currently negative for the period. If this period is not bullish, it points to a down year for stocks in the coming year with a high degree of accuracy.

The price action in US stocks over the past couple of weeks has not been impressive. The Nasdaq 100 has closed lower in 7 of the last eight trading days, not a strong close to the year.

Commodities

The energy markets remain extremely bullish as both Light Crude and Brent Crude continue to rally to new highs for the move. Brent made its highest print since May 2015 and may rally further to 69.63. Light Crude made its highest rent since June 2015 but is heading into what may prove to be a strong resistance area around the 62.00 level.

Metals have also been bullish this week, and this is one asset class that has big potential in 2018. There’s a possible inverted head and shoulders pattern being formed in Gold which, if completed with a neckline break would give a target of 1709.

Currencies

From last week: “The Dollar Index continues to trade within a narrow range, just below its 50-day moving average. This important range spans between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.” The Dollar index did break out of that range to the downside, in the direction of the primary trend, and completed a head and shoulders top pattern that gives a target down to 89.32. However, support can be expected at the September low around the 91.00 area.

We’ve previously discussed the tendency for the Euro to make its high or low for the year in January. EUR/USD did make its low for the year in 2017 on the 3rd January. This past week saw EUR/USD breakout to the upside. If this breakout is the real deal and EUR/USD continues to rise, that would suggest that a low for the year could be in. However, there’s plenty of trading in the month of January and ample time for the market to turn, and it’s also possible that the high for the year may be printed. Of course, as with all seasonal patterns, there’s no guarantee that this pattern will hold, but the past data does indicate a very strong tendency for this pattern.

Interest rate futures

Interest rate futures made a corrective rally this week but remain in long-term downtrends. As has been the case recently, the shorter-term markets remain the weakest. Will 2018 be the year that bonds break their long-term downtrend? It certainly could be if the huge head and shoulders top that is forming completes. Time will tell.

Good trading

Phil Seaton

LS Trader

Weekly Update – 24 December 2017 – LS Trader

We’d like to wish all our readers a very Happy Christmas. We hope you all have a fantastic festive season!

2017 is likely to end with the bull market in global stocks intact and with US stocks either at or near to all-time highs. Multiple markets across all the asset classes look poised to make some decent moves over the coming weeks with key breakouts potentially imminent in multiple currency, commodity, and interest rate futures markets. 2018 is likely to be a very good year for traders as volatility continues to expand.

Stocks

The Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year started on Thursday 21st but has so far seen little action. The bullish period continues through this week and the first two trading days of January.

Commodities

The energy markets continued their recovery from support the prior week, which keeps the long-term uptrend intact. The sole exception is Natural Gas, which printed its lowest level since November 2016.

Precious metals are correcting higher after recent weakness with Gold rallying sufficiently to test its 50 and 200-day moving averages. Silver has made a similar move. Copper has also seen strength and could breakout to new highs this week.

Cotton has made a decisive breakout and has rallied to its highest level since May, whilst London Cocoa and Coffee remain weak.

Currencies

The Dollar Index continues to trade within a narrow range, just below its 50-day moving average. This important range spans between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.

With narrow trading action being seen in the EUR/USD as well, the previously discussed tendency for the Euro to make its high or low for the year in January could result from the next breakout. We’ll have more to say on this in the coming weeks as we look for the same pattern in 2018, but note that EUR/USD did make its low for the year in 2017 on the 3rd January.

Interest rate futures

From last week: “This week, the 10 Year T-Note tested support almost to the tick but found support. We could see support tested again this week.” The 10 Year T-Note tested and broke support as expected, and the RSI broke the 40 level. Also, volatility is expanding within the trending zone. There is room for further weakness, with the next support level coming in around 122.35.

The long bond remains the strongest in the sector and did test short-term resistance this week as we suggested may happen in last week’s update but was unable to break through and a steep 3-day sell-off ensued, taking the long bond below both its 50 and 200-day MAs. As we’ve mentioned in previous weeks, there is a huge head and shoulders top pattern forming which could result in sharply lower prices. The trend for interest rates is now higher, which means prices are set to fall.

Good trading

Phil Seaton

LS Trader

Weekly Update 17 December 2017 – LS Trader

US Stocks have made new all-time highs once again this week as the global bull market remains in effect. There were a few breakouts this week in various commodities markets as volatility continues to awaken. This week is likely to see declining volatility as the week progresses, but watch for the Santa Claus rally in stocks towards the end of the week.

Stocks

New all-time highs were seen in US stocks as expected as the bull markets continue. While many people have been trying to call a top in stocks for most of the past couple of years the fact remains that there has never been a reason to be short. The 200-day moving average has been sloping upwards since March 2016.

As for a measure of strength and momentum, this week’s closing RSI value at 85.48 is the highest in decades. I had to go all the way back to January 1959 to find a higher reading, which is only two years after it expanded to its present 500 stocks! Things aren’t quite so bullish for the S&P 500 at daily chart level as we have some bearish divergence.

The Nasdaq 100 traded in a similar fashion to the S&P 500 and also made new all-time highs. In fact, the current trend in the Nasdaq 100 has been the biggest bull move in history in terms of points, and there is nothing on the chart to suggest that move is over.

International stock indexes lag the US markets, but the Nikkei could be gearing up for a new breakout after Friday’s reversal from fair value. The Dax is currently finding support at the 50-day moving average.

The trend for global stocks remains firmly up, and new highs still seem to be the order of the day. It’s going to take a decent-sized downside break in any of the four stock indexes that we trade at LS Trader to even think about a short trade. The long-term trend is likely to remain up for some months yet. Watch for the Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year. This year that starts on Thursday 21st.

Commodities

Gold came within points of a change of long-term trend to down but then reversed, narrowly keeping the long-term uptrend intact. Silver, which is already in a confirmed long-term downtrend, fell to a slightly new low for the current move before bouncing higher along with Gold.

Cotton made an upside breakout, reaching its highest level since May and completing a change of long-term trend to up. There is plenty of chart space for further strength as the next level of structural resistance does not appear until the 85.00 area.

Brent Crude made the expected breakout and new high but then reversed sharply but held above support.

Currencies

The US dollar has had a mixed week again but appears to be on the verge of at least a couple of breakouts, most likely against the Canadian dollar. The market has tested resistance in October and November but has yet been unable to punch through. That could happen this week. With volatility at low levels, there is potential for an extended move should the breakout prove successful.

The Dollar Index itself is trading within a fairly narrow, but important range, between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.

We’ve written in previous years about the tendency for the Euro to make its high or low for the year in January, and that held true once again in 2017. We’ll have more to say on this in the coming weeks as we look for the same pattern in 2018.

The December currency futures went off the board this week and rolled to March.

Interest rate futures

Interest rate futures remain in a long-term downtrend with the shorter-term markets still the weakest. The three month Eurodollar and 5 Year T-note lead the way to the downside.

This week, the 10 Year T-Note tested support almost to the tick but found support. We could see support tested again this week. The long bond remains the strongest in the sector and may test short-term resistance this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – LS Trader – 10 December 2017

The past week has seen mixed trading in several asset classes, with new all-time highs being seen in the S&P 500, the dollar continuing its recovery, and some decent sized moves in several commodities markets, which includes downside breaks in precious metals.

This week sees the last Fed meeting of the year. The two-day meeting is on Tuesday and Wednesday this week. This Friday is December triple Witching, which sees the quarterly stock index and currency futures expire and roll to the March contract.

Stocks

The bull market in stocks remains intact in spite of a few attempts to break down. Breaks of short-term support have been met with buying, and new highs could be seen again this week.

The S&P 500 fell on Monday and Tuesday before finding support on Wednesday and turning higher, before making an all-time high close on Friday, but a little below the all-time intraday high printed on Monday.

The Nasdaq 100 traded in a similar fashion and found support just above its 50-day moving average. The recent sell-off only took the RSI down to 45, well above the 40m level, which is bull market support. For now, the long-term trend remains up, and new highs look a distinct possibility.

Volume was above average, but that’s to be expected as many people commence rolling to the next contract around a week ahead of expiry. The December contract expires this coming Friday.

Commodities

Brent Crude broke short-term support but reversed higher on Thursday and Friday and may be poised to breakout to new highs again. Similar moves have been seen in the other energy markets except for Natural Gas, which this week has made it’s umpteenth breakout of the year to the downside.

Gold’s recent weakness has continued this week, and a change of long-term trend to down is very much within range this week. Silver, by far the weakest of the precious metals, has already broken to the downside and is trading at its lowest level since July.

Currencies

The Dollar Index rose throughout the week and moved back above its 50-day MA. However, volatility has continued to compress throughout the advance of the past two weeks, and the RSI, although rising, remains below the 60 level, which suggests the recent rally is corrective and against the primary trend, which is still down.

The Australian dollar had a mixed week, initially breaking above short-term resistance before reversing and falling to new multi-month lows on Friday.

The US dollar could be on the verge of a long-term change of trend to up against the Canadian dollar. The Dollar is also within range of an upside breakout against the Yen and Swiss franc, where the long-term trend already favours the dollar.

EUR/USD remains in a long-term uptrend in spite of recent weakness. Commercials have a near-record net short position and are now the most short they have been since 2007.

Interest rate futures

Interest rate futures remain in a long-term downtrend. As has been the case for a while, the shorter-term markets are the weakest and the 30 Year T-Bond is the strongest. The 10-Year T-Note remains very near to critical support, which if broken could yield a significant decline, potentially all the way back to the March lows around 121.78

Good trading

Phil Seaton

LS Trader

Weekly Update – 3 December 2017 – LS Trader

Stocks hit new all-time highs on Thursday but then had a bit of a wobble on Friday, where, by recent standards, a steep sell-off ended with an equally sharp recovery. This resulted in the S&P 500 closing lower by just 0.15% for the day.

Stocks

The S&P 500 posted a new all-time high this week, and after a round trip on Friday, ended the week higher by 1.65%

From last week on the Nasdaq 100: “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.” Momentum continued to decline this week as evidence by doji on Monday and Tuesday, followed by a steep sell-off on Wednesday. Thursday saw a bit of a recovery, but Friday has a similar round-trip pattern to the S&P.

The Nikkei, which rolls this week to the March contract, closed the week flat and has printed an indecision candle on the weekly chart. Friday’s close us roughly in the middle of November’s price range.

The Dax has seen further weakness this week and on Friday closed below change of polarity support from the June high. Short-term support has also been broken, so things are looking a bit more bearish for the Dax than they have in some time. Friday’s close was also decisively below its 50-day moving average, and the RSI has broken the 40-level, which is bull market support. This suggests further weakness ahead, but for now, the long-term trend remains up. If weakness persists, the Dax will almost certainly be the first of the stock indexes that we trade at LS Trader to complete a trend change to down.

Commodities

The energy markets had a dip during the first half of the week but recovered with a strong day on Friday and may now make new highs for the current move. RBOB Gasoline has been the weakest of the four energy markets in a long-term uptrend. Natural Gas remains the weakest in the sector and the only one in a long-term downtrend.

Metals have seen some weakness this week. Silver has been particularly weak, dropping 4.12% and leading the way to the downside. Silver remains the only one of the four major metals markets in a long-term downtrend. Gold has also seen some weakness but remains in a choppy range between its 50 and 200-day MAs, both of which are flat. The RSI is also near the 50 level, and together these indicate an almost complete lack of trend, which has been the case for the last couple of months.

Currencies

EUR/USD looks poised to test the November top, and if successful, may go on to test the August high, and potentially exceed it. The dollar index made a two-month low last week and may move lower again this week, resuming the long-term downtrend. The RSI remains is back in the bear range, and we may see weakness towards the September low over the coming week or so.

From last week on the British Pound: “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.” The Pound rallied sharply, and the RSI broke the 60 level and is now in the bull range. Further strength may follow with possibly a new high for the year.

Interest rate futures

Interest rate futures have seen a good uptick in volatility this week. As before, the shorter-term markets remain the weakest. The 3-month Eurodollar dropped to its lowest level since March 2015 basis the back-adjusted continuous contract, and the 5 Year T-note made its lowest print since March this year.

Good trading

Phil Seaton

LS Trader