Weekly Update – 29 July 2018 – LS Trader

The stock markets remain at a critical juncture and saw some chart damage done at the end of the week. This will put the uptrend under pressure in the short-term next week and these markets need to open with strength or support will likely be tested and broken. Bullish sentiment remains high in the S&P 500 but not dangerously so.

Stocks

The S&P 500 made a new high for the current move but had a relatively sharp reversal on Friday. However, the S&P 500 held up better than the Nasdaq 100, where price action on Thursday and Friday did some technical damage. The uptrend in both markets is under pressure this week. However, the long-term trend remains up for both markets.

The Dax has continued its recovery from the June sell-off, and the Dax and the Nikkei are both within range of a long-term trend change to up. Whether we see that trend change this week remains to be seen. The Nikkei is undergoing significant volatility compression and volatility is now at its lowest level since just before the March low and a rally of almost 3000 points in under two months. A big move is in the offing, and at present that move could be up or down.

Commodities

The CRB Commodity Index ended its run of eight consecutive weekly declines, managing a meagre 0.2% gain for the week. The long-term trend remains down for most commodity markets with only a few exceptions.

The metals markets have had a mixed week, but all remain in well-established long-term downtrends. Palladium has been the strongest in the short-term, with a sharp counter-trend rally from the recent lows.

The energy markets have seen some strength this week but remain some way off their recent highs. The long-term trend remains up for now, and recent price action since the May/July highs is corrective.

The grains markets have also seen some corrective price action this week against the prevailing long-term downtrend. Only Rough Rice is currently in an uptrend, but Wheat has shown considerable strength for much of this month and could breakout this coming week.

Currencies

Price action in the currency markets remains corrective in the short-term, with the long-term trend continuing to favour the dollar. Currently, we have two open positions in the currency markets, short British Pound and short the Swiss franc. Several of the remaining majors are within range of breakouts this week.

Interest rate futures

In spite of the near-record long position that commercials hold in interest rate futures, as reported in the commitments of traders report (COT), interest rate futures have been unable to gain any traction and complete a change of trend to up. Weakness has been seen this week, and we may see further selling and a possible test of the recent lows. The long-term trend remains down for the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update – 22 July 2018 – LS Trader

The past week has seen new highs for the current move for US stocks and the dollar, but both sectors have been unable to hold their gains and press higher. The long-term trend remains up for US stocks, up for the dollar, down for interest rates and down for most commodities.

Stocks

The S&P 500 reached its highest level since the first week of February and has consolidated above the top of the triangle. The long-term trend remains up, with the RSI bullish. If prices can continue to hold above the triangle, then the focus remains on higher prices and a rally back towards all-time highs. Prices remain at a critical juncture.

The Nasdaq 100 made new all-time highs again this week and remains bullish and above support. The Dax and the Nikkei remain in long-term downtrends, but the Nikkei is within range of an upside breakout and a change of long-term trend to up. The Dax is the weakest of the four stock indexes we trade at LS Trader.

Commodities

The majority of commodity markets remain in a long-term downtrend with only a few exceptions. The CRB Commodity Index fell this week for the eighth consecutive week, which is an indication of the current bearishness. Metals and grains have both seen continued weakness in recent weeks.

The metals markets experienced something of a bloodbath this week before recovering some of the losses on Friday. The long-term trend remains down across the sector. Sentiment remains extremely negative and the end of week corrective rally that began from Thursday’s low may continue this week.

Except for Rough Rice, the grains markets have been heavily hit over the past couple of months and remain in extended downtrends. This week has seen a corrective bounce, but the markets remain below resistance and could turn down again this week. The only things that support the bull side are that sentiment remains extremely negative, and there is bullish momentum divergence on a couple of the markets.

Currencies

The Dollar Index rallied to its highest level in a year this week before reversing sharply. The long-term trend continues to favour the dollar against all the majors, and dollar weakness at present is a correction in a dollar bull market.

Sentiment is also extremely negative for some of the major currencies against the dollar, which is a leading indicator for a corrective rally, which has already begun in some of the markets. However, the long-term uptrend for the dollar remains in effect, and we’re a long way from a change of trend to down.

Interest rate futures

Interest rate futures continue to be unable to break critical levels to the upside and remain in a long-term downtrend. The commitments of traders report (COT) still shows huge net long positions for commercials, but the weight of the long-term downtrend remains in effect.

Good trading

Phil Seaton

LS Trader

Weekly Update – 15 July 2018 – LS Trader

The past week has seen the Nasdaq 100 breakout to new all-time highs and also sees the S&P 500 at a critical juncture. Price action in US indices this week will likely determine the path for the next few weeks at least.

The correction lower in the dollar may have ended, and we have seen a resumption of strength in the dollar. Metals remain weak and in long-term downtrends and continue to print new lows. Other commodities, especially grains, have also seen continued weakness.

Stocks

From last week: “Support has been found at the bottom of the triangle (S&P 500), accompanied by the RSI holding and moving higher from bull market support. The triangle points to an upside breakout and rally to new all-time highs in the coming weeks for the S&P 500. The Nasdaq 100 also looks set for a test of all-time highs.”

The S&P 500 completed the breakout in what could be a bullish development and see a further rally back to test the late-January all-time high. The Nasdaq was stronger again and already completed its breakout to print new all-time highs on Friday. The RSI has remained in the bull range on the Nasdaq 100, with the recent correction finding support on the RSI precisely at the 40 level. The long-term trend remains up for US indices.

Commodities

The energies markets have seen weakness this week, and Crude Oil’s breakout has been unconfirmed by other markets in the sector. Crude itself saw weakness this week and broke short-term support. The long-term trend remains up for the sector for now.

From last week: “Copper broke support and remains in a long-term downtrend, as do the other metals. Copper’s low print this week was the lowest print in almost a year.” Copper has continued to sell-off this week as the entire metals sector remains weak and continues to print new lows for the current moves.

The grains sector has continued to sell-off with the exception being Rough Rice. The soybean complex all printed new lows for the current move and remain very weak.

Currencies

From last week on the currencies: “The dollar has seen continued weakness this week as sentiment recovers from very low levels for the majors against the dollar. The Dollar Index itself had reached extremely high bullish sentiment readings and is pulling back. However, the long-term trend continues to favour the dollar across the board.”

Dollar weakness continued early this week but has since seen a return of strength. Multiple currencies, including the Dollar Index, are within range of breakouts this week, and we could see the resumption of a dollar uptrend.

Interest rate futures

Interest rate futures continue to consolidate just below key resistance levels. For now, the long-term trend remains down for the sector, but as covered in recent weeks, that could be on the verge of changing. The commitments of traders report (COT) remains at or near record net long positions for commercials and record net short for large speculators. Such a profile usually resolves itself in favour of the commercials, which would suggest a change of trend to up will be completed in the coming weeks for the longer-term markets. The shorter-term interest rate futures markets remain weaker than the long-term futures.

Good trading

Phil Seaton

LS Trader

Weekly Update – 8 July 2018 – LS Trader

The past week has seen mixed trading in many markets. The dollar has seen some weakness as have metals and energies. US stocks remain long-term bullish, and interest rates continue their counter-trend advance that is now approaching the point of a change of long-term trend to up.

Stocks

From last week: “The S&P 500 is still in the large triangle pattern that has been in place for four months. This pattern could resolve itself in either direction, but with the long-term trend still up for US stocks, the odds favour an upside resolution. In other words, the bull market in US stocks is still intact.” Last week’s comments still apply. Support has been found at the bottom of the triangle, accompanied by the RSI holding and moving higher from bull market support. The triangle points to an upside breakout and rally to new all-time highs in the coming weeks for the S&P 500. The Nasdaq 100 also looks set for a test of all-time highs.

Global stocks are in a different position with the long-term trend currently down for both the Dax and the Nikkei, although strength this week in the Dax points to a test of resistance this week.

Commodities

Copper broke support and remains in a long-term downtrend, as do the other metals. Copper’s low print this week was the lowest print in almost a year.

Also from last week on Gold: “However, sentiment is very negative, and volatility is reaching extreme levels, so a counter-trend rally could be seen soon.” Gold fell to a new low for the move at 1238.8 before putting in the expected rally. Sentiment remains negative, and we may see further short-term strength, but the long-term trend remains down.

Crude rallied again this week, printing new 3 1/2 year highs but did see some weakness. The $84 target remains a possibility. Brent and the other energies have so far fallen short of a breakout, so the rally in Crude remains unconfirmed by other markets in the sector.

Currencies

From last week on the currencies: “Typically, when sentiment gets this low, a short-term reversal, correcting the prior trend is not too far away. We have seen some of that this week with several majors bouncing higher from their recent lows.”

The dollar has seen continued weakness this week as sentiment recovers from very low levels for the majors against the dollar. The Dollar Index itself had reached extremely high bullish sentiment readings and is pulling back. However, the long-term trend continues to favour the dollar across the board.

Interest rate futures

In last week’s update, we wrote about the enormous commercial long positioning as reported in the COT report and made a case for a more significant counter-trend rally and possible change of long-term trend in this sector, which would catch many out and have them positioned on the wrong side of the market.

We also noted that there was a potential test of the neckline on a head and shoulders bottom on the 30 Year T-Bond, and further out the 10 Year T-Note. The 30 Year T-Bond did briefly break the neckline and came within a point of a change of trend, which will possibly be complete this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 1 July 2018 – LS Trader

The position in the markets is currently very interesting. We’ve had a correction lower in stocks, a new rally in energies, continued weakness in metals and possibly the start of a new uptrend in interest rate futures.

## Stocks
This week’s decline in the stock markets resulted in support being broken in the Nasdaq 100 and S&P 500 and resulted in a resumption of the long-term downtrend in the Dax.

From last week on the Dax: “The Dax has seen considerable weakness over the past two weeks following the failure to breakout above 13186. Price has fallen back to the middle of the range between the late January high and the March low. A head and shoulders pattern is forming on the weekly charts, but additional weakness is required to complete the pattern.” The Dax had sufficient weakness to resume the downtrend, but as yet we have seen little in the way of follow-through.

The S&P 500 is still in the large triangle pattern that has been in place for four months. This pattern could resolve itself in either direction, but with the long-term trend still up for US stocks, the odds favour an upside resolution. In other words, the bull market in US stocks is still intact.

## Commodities
The metals have seen continued weakness. Last week on Copper: “Weakness continued this week, and a downside breakout is very much within range early this week. Commercials have a record net short position which suggests weakness will continue and support will be broken this week, resuming the long-term downtrend.” Copper broke support and remains in a long-term downtrend, as do the other metals.

Also from last week: “Gold fell to new lows for the year and may continue to decline towards the next level of support around $1250. Silver and Palladium have also seen weakness and the long-term downtrend could resume this week.” Gold exceeded our $1250 target, printing $1246.9 on Friday and remains weak. However, sentiment is very negative, and volatility is reaching extreme levels, so a counter-trend rally could be seen soon.

Last week on Crude Oil: “Crude Oil was higher by 5.71% on Friday and 7.86% on the week. The long-term trend remains up across the sector, and we may see continued strength back towards a test of the May highs.” Crude rallied as expected, in fact, more than expected and not only retested but exceeded the May high, reaching its highest level in 3 1/2 years and resuming the long-term uptrend. There appears to be further to run for this market, with further rally towards the $84 level a possibility. Other markets in the sector, especially Brent Crude, could also breakout this week.

## Currencies
From last week on the currencies: “Typically, when sentiment gets this low, a short-term reversal, correcting the prior trend is not too far away. We have seen some of that this week with several majors bouncing higher from their recent lows.” The currency markets continue to chop around near their recent lows/highs, and sentiment remains near an extreme.

## Interest rate futures
The long-term trend remains down for interest rate futures, as indeed has been the case since the trend changed to down back in October last year. However, many traders and commentators have been focusing on the expectation of higher interest rates, and since rates move inversely to prices, lower prices. That has been the case since October. The problem with that is that when so many people are on the same side of the trade, there is nobody left to sell and that often resolves itself in a move in the opposite direction.

Since late October, speculators have been building up record net short positions, while commercials have been accumulating record net long positions. The result of this has been two large counter-trend swings, once in March and the next in May. We now appear to be in the early stages of a third swing higher. When commercials build up record positions, prices usually eventually move in favour of the commercials. This suggests further upside ahead and a possible trend change to up. This will, if it happens, catch speculators on the wrong side of the market and result in forced short covering.

Also, there is a head and shoulders bottom potentially forming on the 10 Year T-Note and 30 Year T-Bond. The neckline is still a decent way above current prices on the 10 Year T-Note but is within range on the long bond. If the neckline is broken, we could see a significant rally from the technical perspective, too, possibly to around 153 on the long bond.

For now, the long-term trend remains down, but that could change soon. Keep an eye on these markets for exciting developments in the coming weeks.

Good trading

Phil Seaton
**LS Trader**