Weekly Update – 25 February 2018 – LS Trader

The past week, which was a shortened trading week due to the Presidents’ Day holiday in the US, was also a fairly quiet one by recent standards. Volatility has receded from the extremes seen at the start of the month.

Stocks continue their recovery after the recent sell-off, and the Nasdaq 100 stands a decent chance of new highs this week. Many other markets have spent most of the week consolidating, with the long-term trends remaining unaffected.

The long-term trends are currently up for stocks, down for the dollar, down for interest rates, mixed to up for commodities. Commodities continue to gain strength overall, and those that have not yet completed changes of trend to up continue to form a base. The CRB Commodity Index looks poised for a breakout from a base that has been in place for over three years.

Stocks

From last week: “At present, the long-term trend remains up, and US stocks are heading back towards their all-time highs.” The Nasdaq 100 leads the way and may test all-time highs this week, with a breakout to new all-time highs a real possibility. Commercials are net long the Nasdaq 100 again, which is not a normal position. They are usually short due to hedging. They currently hold their largest net long position since December 2011, when the Nasdaq was trading around 2200. It stands at 6902.5 today, basis the March contract.

Commodities

The energy markets continue to recover from the recent sell-off and may push higher to test their recent highs. The long-term trend remains up.

Gold ended the week lower and continues to consolidate below key resistance, and what may prove to be the neckline of an inverse head and shoulders.

Lumber advanced another 2.41% this week to print new all-time highs once again.

Soybean Meal made its highest print since July 2016 but was unable to make much progress after printing the new high, advancing only 0.53% for the week and printing an indecision bar on the weekly chart. The long-term trend remains bullish but volatility is nearing extreme levels, and a correction could be seen before the rally continues.

Currencies

The dollar index continues to consolidate near the lows of the recent downtrend, and it remains in a long-term downtrend with new lows still a possibility.

The Euro ended the week lower by 0.93% but remains within range of a breakout. Commercials remain net short.

Interest rate futures

Interest rate futures fell to new lows for the current move earlier in the week before recovering and finishing the week with strength. Sentiment, which fell to single digits two weeks ago remains very bearish but has risen slightly this week. Commercials remain net long the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update – 18 February 2018 – LS Trader

Monday is Presidents’ Day in the US, so it will be a shortened trading week for US markets.

Stocks continued their recovery that began during the previous week. Interest rate futures resumed their downtrend and commodities continue to gain traction to the upside.

Stocks

Stocks continued the bounce that began on the prior Friday and, in the case of US markets crossed back above their 50-day moving average. However, it should be noted that on Friday a doji was printed on the S&P 500, which is an induction bar and indicates that the bounce has lost momentum. That may turn out to be a temporary pause as the market catches its breath from the rally, or it could be a turning point. At present, the long-term trend remains up, and US stocks are heading back towards their all-time highs.

The Dax has been the weakest of the four stock indices we trade at LS Trader and is the only one of the four to complete a change of trend to down. However, the Dax bounced as well and is heading back towards a test of its 200-day MA. It will take significant rally for the Dax to recover to new all-time highs as it is still some 1150 points below those levels. The bias in the Dax has turned to the short side.

Commodities

From last week: “Soybean Meal has seen bullish price action and could complete a bullish trend change this week.” The grains markets have continued to see bullish price action and evidence continues to stack up that a long-term bottom could be in. Soybean Meal exploded to the upside, advancing some 8.58% this week. Soybeans also completed a change of trend to up, but Friday’s breakout was unable to hold above the prior resistance level.

Lumber printed new all-time highs having posted gains for the week of 5.33%. The negative here is that bullish sentiment is at a very high reading. However, we saw a similar reading back in October, and the rally has persisted since.

In spite of large commercial buying, Coffee remains in a long-term downtrend and after a 3.14% decline on Friday appears poised to breakdown to new lows.

Currencies

From last week: “We could see breakouts this week against the dollar for the Japanese Yen and Swiss franc.” Both the Japanese Yen and the Swiss franc broke out as expected, and the dollar remains weak.

The Euro came within pips of a new breakout but reversed at prior resistance. Sentiment remains high, and commercials maintain a near-record net short position. Both of these are negatives for further advance. However, commercials may capitulate if a breakout to the upside is successful, such a move has been seen before in the Euro’s history.

The Dollar Index tested support and bounced but the long-term trend remains down, and we could see new lows again soon.

Interest rate futures

From last week: “The expected bounce did materialise, and although it was a large bounce, it did not damage the longer-term trend, which remains down. We could see this sector resume the downtrend as soon as this week.” Interest rate futures moved lower this week as expected, and the sector resumed the downtrend. Some strength was seen at the end of the week, particularly in the 30 Year T-Bond.

Good trading

Phil Seaton

LS Trader

Weekly Update – 11 February 2018 – LS Trader

Stock market weakness continued this week as volatility continues to expand across multiple markets. Volatility has reached extreme levels in the stock markets, and a new period of higher volatility in stocks appears to have arrived.

However, the extremes seen over the past week or so are likely to decrease somewhat over the coming weeks but remain at elevated levels compared to what has been seen over the past year or so. The period of low volatility, which has been deadly for trends in most markets, appears to be behind us. A new period of large trends is on the horizon in many markets.

Stocks

Stocks continued lower this week and broke support, as we suggested would happen in last week’s update. The weakness seen so far is a correction, and that will remain so until a change of trend is completed. However, price action does have an impulsive look to it, so if weakness persists, change of trend-defining support could be tested and broken.

Bullish sentiment has continued to decline and fell as low as nine this week, which is actually 1 percentage point lower than the low at the time of the US election, from which the massive rally was launched.

On the S&P 500, the price fell below the 200-day moving average on Tuesday and Friday, but on both occasions, a bounce followed shortly afterwards. Tuesday’s low at 2529 was matched almost exactly on Friday with a low at 2530.25. Both times strong buying was evident, as can be seen by the long lower wicks on the daily charts, a sign that the lows are being rejected. For now, the long-term trend remains up but last week’s lows will likely need to hold. If they are broken decisively, a change of long-term trend to down will come within range.

From last week: “A change of long-term trend to down is within range on the Dax and could complete later this week if weakness persists.” The Dax, which has been the weakest of the four stock indexes we trade, did complete the change of trend to down this week. However, as with the S&P 500, the lows were strongly rejected on Friday. Last week’s low will be a key level to watch this week if weakness resumes.

Commodities

Although the focus of many has been on the stock markets, the energy markets have also collapsed and broke support this week as expected. This has brought to an end some highly profitable and long-running trends in the energy markets, at least for now. As with stocks, the long-term trend is still up.

The metals markets have also seen weakness, but not to the same degree as stocks or energies. Silver, which is the weakest of the sector, could resume its long-term trend to down soon. Copper and Palladium both have changes of long-term trend coming into range.

From last week: “Corn is on the verge of a change of trend breakout to up, which could complete this week.” Corn did complete the change of trend to up, but so far without follow through. Soybean Meal has seen bullish price action and could complete a bullish trend change this week.

Currencies

The Euro declined this week as the dollar’s recovery continued. However, the long-term trend is still very much up for the Euro and based on the January effect we’re looking for the January low to hold for the year. The long-term trend for the dollar remains down in spite of recent weakness. We could see breakouts this week against the dollar for the Japanese Yen and Swiss franc.

Interest rate futures

From last week: “The long-term trend remains down across the sector and is likely to continue so for a considerable time, even if we do get the expected short-term bounce.” The expected bounce did materialise, and although it was a large bounce, it did not damage the longer-term trend, which remains down. We could see this sector resume the downtrend as soon as this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 4 February 2018 – LS Trader

Stock markets reversed aggressively this week following a new high at the open which could not hold. The price action this week certainly represents a change in personality of the market and puts the market into corrective mode. Interest rate futures collapsed, making their lowest print since 2015 (30 Year T-Bond).

Stocks

Stocks opened the week higher but were unable to press further as the weakness that commenced on Monday continued throughout the week, with a significant down day on Friday. The reversal broke short-term support on the S&P 500 and the Dax and had taken the Nasdaq 100 right to support, which will likely be tested and probably broken on Monday.

The reversal printed on the S&P 500 is a key reversal on the weekly chart. However, the long-term trend is still most certainly bullish, and this can only be viewed as a correction in a bull market at this stage. Considerable further weakness will be required for a change of trend. Nonetheless, it has put a large dent in the bull case.

Bullish sentiment, which had been at or near record highs for several weeks, took a battering as the percentage of bulls has dropped from 96 to 39 in only two weeks.

The Nikkei and Dax have both been weaker than US markets. We exited a profitable Nikkei trade during the prior week on a break of support. The Dax also broke support this week and not only did it break short-term, support, it also broke medium-term support. A change of long-term trend to down is within range on the Dax and could complete later this week if weakness persists.

Commodities

The energy markets have seen some weakness this week and support has been tested and stands a good chance of getting broken this week.

The metals markets have also seen weakness as Gold, Silver, Palladium and Copper were all lower.

The grain markets continue to show signs that a long-term bottom is forming, or is already in place. Corn is on the verge of a change of trend breakout to up, which could complete this week.

Currencies

The Euro closed the month significantly higher, so according to the January effect, the low for the year should be in at the January low at 1.1964 (basis March contract). Of course, there is no guarantee this pattern will hold this year, but it does have a very high strike rate.

From last week on the Dollar Index: “A bounce can be expected soon here, but the trend is firmly down”. A small bounce has been seen in the Dollar Index, and resistance could be tested this week.

If the January effect in the Euro holds, and we have seen the low of the year in the Euro, the inverse of the Euro is the Dollar Index. This would suggest that the Dollar Index has put in it’s high of the year (note, the Euro makes up 57% of the index, so this pattern is less reliable). That high currently stands at 92.36 (basis March. contract).

Interest rate futures

Interest rate futures collapsed this week as the hugely profitable downtrend continued. However, it should be noted that sentiment has become extremely bearish, registering in a rare single-digit reading. Sentiment has not been this negative since December 2016, from where a significant rally ensued.

The long-term trend remains down across the sector and is likely to continue so for a considerable time, even if we do get the expected short-term bounce.

Good trading

Phil Seaton

LS Trader