Weekly Update – 28 January 2018 – LS Trader

2018 continues to show signs that it’s going to be a great year for trend following as multiple markets continue to trend well. There are also markets that have yet to break out but are in the process of building favourable setups. The grains markets, in particular, are starting to look very interesting. More on that below.

The long-term trends remain up for stocks, up or turning bullish for most commodities, down for the dollar and down for interest rate futures.

Stocks

Unless we get a crash during the last three trading days of the month, stocks are going to close the month well up. Based on the January barometer, this points to a full year of gains for stocks. Both the S&P 500 and the Nasdaq 100 closed the week out at new all-time highs, both printing a marabozu pattern (closing at the top of the candle with no upper shadow). This shows momentum into the close and is often followed by strength at the opening.

There are bears everywhere calling for a top, just as there have been since November 2016 and all of 2017. Eventually, they will be right, but for now, these markets just keep on truckin’. Trying to pick tops against such strong momentum usually results in bears getting made into rugs! As long as the markets remain above support, and they do, there is no reason to bail out of longs and certainly no need to short.

The Dax broke out to new all-time highs as expected but has so far been unable to push on. The Nikkei had a bit of a pullback and broke short-term support, but remains in a long-term uptrend and may hit new highs again soon.

Commodities

The grain markets overall look as though they may be in the process of putting in a long-term bottom and there is huge rally potential for several markets in the sector. Market sentiment in the sector is low, as is volatility, which continues to awaken. Most importantly perhaps, there is huge commercial buying. The grains markets could enter a huge bull market this year.

The energy markets remain strong with new highs for the current move being printed this week. There is, however, bearish divergence in the Crude markets, so momentum is waning. However, markets remain above support, and the trend is bullish.

Natural Gas completed a change of trend to up for the first time since 2016, and now the entire energy sector is in a long-term uptrend.

Lumber prices made their highest print since 1993 as the bull market continues and closed within a dollar of all-time highs. Expect a new al-time high print this week.

Currencies

The Euro made a new high for the current move on Thursday but that day also saw an indecision bar printed. It’s looking increasingly likely that the Euro has put in its low for January. If that is the case, then the January effect suggests that the low for the Euro may be in for the year. However, sentiment is very high, as is volatility. Commercials again have a record net short position. A pullback would not be surprising, but the market, for now, remains bullish and above support.

The British Pound is now trading above pre-Brexit lows, and except the commercial position, which is only slightly net short for the Pound, a similar case can be made for a correction in the Pound.

Given the above comments, it’s no surprise that the Dollar Index continues to collapse. Sentiment is very bearish, with only 10% bulls. Commercials have gone slightly net long having unwound a large short position. A bounce can be expected soon here, but the trend is firmly down, and buying here is the equivalent of catching a falling knife.

Interest rate futures

Interest rate futures remain weak with all markets in the sector making new lows for the current move. The UK Long Gilt has held up better than US markets in recent weeks, but that too broke support as expected and has resumed its long-term downtrend.

Good trading

Phil Seaton

LS Trader

Weekly Update – 21 January 2018 – LS Trader

The excellent start to 2018 continues as multiple markets continue to trend well. Stocks, in particular, continue to make new highs as the bull market continues. The dollar remains weak, as do interest rate futures, while commodities are mixed.

Stocks

Stocks continue their epic run and have made new all-time highs once again this week. Sentiment remains extremely bullish but slightly lower than it’s recent bullish extremes. Given the advance seen so far this month, it will take a steep correction for the markets not to register a bullish January, which, based on the January barometer, points to a full year of gains for stocks.

The Dax, which has been the weakest of late of the four stock indexes we trade at LS Trader looks poised to breakout to new all-time highs this week. This week the Dax reached levels not seen since early November.

Commodities

The Crude Oil markets made new highs for the current move on Monday but have eased during the week, but remain in strong uptrends. It’s possible that we may see further corrective price action, but for now, the markets remain above support. Commercials now have a record net short position according to COT data.

Gold printed its highest price since September but also eased as the week progressed. Similar price action has been seen in the other metals markets.

Lumber prices made their highest print since 1993 as the bull market continues. Sugar has seen some weakness but should find support from nearby levels, and last week’s low at 13.02 may hold. Commercials are near an all-time net long position. Bullish sentiment has also fallen to low levels, but have yet to decline to single figures, where the market often bottoms out.

Currencies

It’s looking increasingly likely that the Euro has put in its low for January. It will take a move back below 1.1964 to negate that, which is still possible given that we still have eight trading days left this month. If that is the case, then the January effect suggests that the low for the Euro may be in for the year. Time will of course tell, and it is possible that last week’s high at 1.2369 may also mark the high for the month and the year if we get sufficient weakness over the rest of the month. Either way, this is a pattern well worth watching due to its predictive effect for the whole year.

The British Pound has risen to its highest level since Brexit and is now trading above the lows that were seen in the weeks before Brexit.

Interest rate futures

The long-term trend is down for all five interest rate futures markets that we trade at LS Trader. This week saw a bit of a bounce in some of these markets followed by a resumption of weakness and new lows. The long bond fell to its lowest level since March last year.

The 5 Year T-Note is now at it’s lowest level since April 2010 and the 10 Year T-Note since July 2011. The only one of the five that has yet to break down is the UK Long Gilt, and a test of support looks likely this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 14 January 2018 – LS Trader

The excellent start to the year has continued with multiple markets trending well and more in the pre-breakout phase and likely to breakout soon.

Monday is Martin Luther King Day in the U.S, so U.S markets will have affected trading hours due to the public holiday.

Stocks

The stock market continues to get bullish seasonal indicators confirmed as the Santa Claus rally, which was already completed last week, was joined this week by the next seasonal indicator, which is the first five trading days of January. This indicator, which has an 83.3% accuracy in predicting full-year gains for stocks also completed this past Monday. We now wait for the end of the month for the January barometer, but unless we have a fairly drastic sell-off over the next couple of weeks, that indicator will be bullish as well.

Both the S&P 500 continue to dazzle to the upside, making new all-time highs in the process once again.

The Nikkei continues to advance since the breakout from the ascending triangle (that interpretation ignores the spike on the 9th November). From last week: “This week could see a test of 24020, which was last seen in June 1996.” The Nikkei reached our 24020 target, printing a high of 24025 before easing off somewhat.

The trend for global stocks remains bullish, and in spite of extreme bullish sentiment readings, that view will remain in effect until confirmed by the technicals.

Commodities

The energy markets, particularly Light Crude, which is currently our largest winning open position, continue to impress to the upside. Bullish sentiment on Crude has reached 94%, and COT commercials have reached a record net short position. Brent Crude also continues to rally and this week crossed the $70 level for the first time since late 2014.

Gold advanced 1.36% this week with most of the week’s gains coming on Friday, which was a strong day. The metals remain strong, with Palladium making new all-time highs, as we have been expecting for several weeks.

Currencies

The dollar index made its lowest print since January 2015 this week, a new 3-year low, as the dollar continues to show weakness against multiple major currencies.

The Euro, as expected, reached its highest level against the dollar in 3 years. Interestingly, sentiment is not that bullish, with only a 61% bullish reading. The commitment of traders reports shows that commercials have their largest short position on record against the Euro. Although trends often resolve in the direction of the commercials, we have seen many instances over the years, even in the Euro itself, where the commercials have had to capitulate and unwind their position, resulting in an extended trend. That could happen here.

Interest rate futures

The 30 Year T-Bond completed a change of trend to down this week but has yet to produce any follow-through. This now has the long-term trend down for all five interest rate futures markets that we trade at LS Trader.

Good trading

Phil Seaton

LS Trader

Weekly Update – 7 January 2018 – LS Trader

The year has got off to a flying start with bullish moves being seen in stocks and some decent moves in other markets. Due to many markets spending much of the past 12-15 months in low volatility trading ranges, 2018 is likely to be a year of breakouts, expanding volatility and momentum, and extended trends.

In other words, ideal trading conditions.

Stocks

The stock markets shrugged off a weak close to 2017 and opened the year with a bang and never looked back. The Santa Claus rally, which runs from the 21st December through to the 2nd trading day of the year, in this case, the 3rd January was bullish, and this points to a bullish year in stocks. The next seasonal indicator is the first five trading days of January, which has an 83.3% accuracy in predicting full-year gains for stocks is also off to a good start with a large four-day rally to kick the year off. Unless we get a huge down day on Monday, this indicator will also be bullish.

The biggest negative for stocks, in particular, the US stock indexes, is extreme bullish sentiment. In fact, bullish sentiment on the S&P 500 is at 95% bulls, which is the highest reading I could find. Bullish sentiment at extreme does not mean that a reversal is imminent, but large speculators have their largest long position since March 2013. A pullback to ease the sentiment may be seen in the next week or so, but is not necessary. All the technicals are bullish.

The Nikkei also launched big move to start the year as it broke out from an ascending triangle (that interpretation ignores the spike on the 9th November). This week could see a test of 24020, which was last seen in June 1996.

Commodities

From last week: “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.” Light Crude reached the 62.00 level, printing 62.21 before reversing slightly. Commercials now have a record net short position. The trend remains bullish for energies except for Natural Gas.

Sugar remains a choppy market but could be building up for a big move. Commercials are once again net long, not far from a record net long position. Such a position often results in a large up move. Time will tell.

Currencies

In recent weeks we’ve written about the January effect in EUR/USD and the tendency for this market to make its high or low for the year during January. It’s too early to say which way this will go, or even if the pattern will work this year. The low for 2017 was made on the first trading day of the year, which was the 3rd. This year the first trading day was the 2nd, and the low for the day was 1.2056 basis the March contract. Of course, we could also see a reversal and the high for the year printed this month.

The dollar index, which is a near-perfect inversion of EUR/USD fell to its lowest level since September, and the September low is the next target.

Interest rate futures

Interest rate futures resumed the downtrend this week as both the 5 Year T-Note, and the 3-Month Eurodollar (Sep-18 contract) fell to new lows for the current move. The 10 Year T-Note was also weak and tested the recent low. The 30 Year T-Bond remains the strongest and has yet to breakdown.

The UK Long Gilt remains range bound, trading roughly in the middle of the range that has been in place since March last year.

Good trading

Phil Seaton

LS Trader