Weekly Update – 30 December 2018 – LS Trader

We’d like to wish all our readers a very Happy and prosperous New Year.

At this time of the year, we usually write about the Santa Claus rally, which is where the market usually has a short, respectable rally for the last five trading days of the year, through to the first two in January. This year, that period began on the 24th, and currently, the market is up over that period. We won’t know whether that pattern will complete until the close on Thursday the 3rd.

Next week we will cover the outcome of the Santa rally and turn our attention to the January effect in EUR/USD, a seasonal pattern that has been correct 76% of the time.

Stocks

From last week: “The bullish sentiment reading on the S&P 500 has fallen to 7%. This is the lowest level seen since January 2016 and is an indication of how negative the market has become. Sentiment extremes such as these often precede corrective rallies..”. The stock markets did put in a sharp, corrective rally from a sentiment extreme. However, Friday’s candle was an indecision candle, which suggests this short, sharp rally may be running out of steam. The market remains below resistance, and the trend remains down.

Commodities

From last week: “Gold did break out as expected, completing a change of long-term trend to up for the first time this year. The RSI also broke above the 60 level.” Since the breakout, gold has continued to advance and has printed an impressive sequence of higher highs and higher lows since the bottom on the 16th August. The Head and Shoulders bottom on the monthly chart continues to form, and a breakout above the neckline on the monthly chart at 1377.5 could confirm that a new bull market is in place.

Silver is following Gold’s lead and has broken out to its highest level since August. A change of trend to up could follow soon.

London Cocoa, which is not a market that we write about often here could be on the verge of completing a head and shoulders bottom, and a change of long-term trend would be confirmed on a break of the neckline. A breakout could see London Cocoa rally to over 2000, exceeding the 2018 highs.

Currencies

From last week: “The dollar is on the verge of testing critical support against the Aussie, where a breakout to the downside would resume the long-term downtrend for the Aussie.” The Aussie did fall through support but only briefly and so far without follow-through. However, the long-term trend remains down for the Aussie.

Interest rate futures

From last week “we may see support in the Gilt tested and broken this week.” Gilts tested support almost to the tick, but support was found, and the market rallied, ending the week higher. This narrowly keeps the long-term uptrend intact for Gilts.

The US interest rate futures markets all printed new highs for the current move, and the long-term trend remains up.

Good trading

Phil Seaton

LS Trader

Weekly Update – 23 December 2018 – LS Trader

We’d like to wish all our readers Happy Holidays and a Very Merry Christmas. We’ll be back next week with the final LS Trader newsletter of 2018.

From last week: “…given the Fed meeting, triple witching and the current geopolitical climate, there is room for some large swings in the markets.” The markets certainly delivered some significant moves as the stock markets made sharp declines. The Nasdaq 100 has fallen over 20% from its peak, leaving many commentators stating that it’s now in a bear market. That 20% figure is nonsense, as it means that 19.9% is not a bear market, but 20% is! In fact, the Nasdaq 100 entered a bear market on the 24th of October according to our proprietary system when it completed a change of long-term trend to down. That’s what enabled us to get short far ahead of the crowd and catch this week’s decline.

Stocks

From last week: “The Nasdaq 100 is within range of testing support this week and may also breakout.” As mentioned above, the Nasdaq 100 did break support and make a sharp decline, ending the week lower by 8.51%. The S&P 500 also made a sharp decline, finishing the week lower by 7.37%. The S&P 500 may decline further to test the 200-week moving average, currently at 2379. The Nikkei and Dax also made similar declines as the long-term trend for global stocks remains down.

Sentiment on stocks has become extremely bearish. The bullish sentiment reading on the S&P 500 has fallen to 7%. This is the lowest level seen since January 2016 and is an indication of how negative the market has become. Sentiment extremes such as these often precede corrective rallies but cannot be used as a timing indicator on their own. Markets can remain extremely bearish for extended periods.

Commodities

From last week: “Gold came close to completing a change of long-term trend to up before moving lower. The RSI has attempted to break the 60 level but has been unable to do so decisively and therefore remains in the bear range. A breakout above last week’s high will likely change that.” Gold did breakout as expected, completing a change of long-term trend to up for the first time this year. The RSI also broke above the 60 level.

The energy markets got destroyed once again this week with all markets making new lows for the current move. Natural Gas, which is the only market in the sector currently in a long-term uptrend, also broke sharply lower, bringing the 2018 bull market to an end.

Currencies

The currency markets have seen mixed trading this week in a week that saw the Fed raise rates for the last time in 2018, and possibly for the last time in this tightening cycle. The Dollar rallied to its highest level against the Canadian dollar since May 2017. The dollar is on the verge of testing critical support against the Aussie, where a breakout to the downside would resume the long-term downtrend for the Aussie.

Interest rate futures

US interest rate futures all made new highs for the current move this week, and the entire sector is now in a long-term uptrend. Only the UK Long Gilt did not make a new high this week, and we may see support in the Gilt tested and broken this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 16 December 2018 – LS Trader

This week ahead sees the 2-day FOMC meeting and triple witching on Friday. It’s generally a week that sees declining volume as traders wind down for the holiday, but given the Fed meeting, triple witching and the current geopolitical climate, there is room for some large swings in the markets.

This past week saw us roll from December into March for all currency and stock index futures.

Stocks

From last week: “The long-term trend remains down for global stock indices, and we could see new lows for the current move completed this week.” The S&P 500 did break to new lows this week as anticipated, but so far the Nasdaq 100 has not. However, the Nasdaq 100 is within range of testing support this week and may also breakout.

Commodities

Gold came close to completing a change of long-term trend to up before moving lower. The RSI has attempted to break the 60 level but has been unable to do so decisively and therefore remains in the bear range. A breakout above last week’s high will likely change that.

The energy markets have traded mostly sideways this week and remain in a long-term downtrend except for Natural Gas. Natural Gas made a sharp move lower this week and broke support in the process, which resulted in the LS Trader system exiting a very profitable long trade. The system remains short the remaining four markets in the sector, all of which are very profitable trades.

Currencies

The British Pound gapped lower on Monday and made a new weekly low close for the current move, which was the lowest weekly close since March 2017. The long-term trend remains down. Sentiment is extremely negative for the Pound, as one would expect given the current negative news flow surrounding Brexit. However, the longer-term picture is not as bleak as it seems. There is substantial commercial buying as reported in the COT, which means that the smart money thinks the Pound will move higher. There is also some momentum divergence, waiting for a trigger. For now, the trend remains down, and it will require considerable strength for that to change.

Interest rate futures

Interest rate futures have had a mixed week having hit new highs for the current move before pulling back. The long-term trend remains up for interest rate futures except for the 30-year T-Bond, which for now, remains in a downtrend.

Good trading

Phil Seaton

LS Trader

Weekly Update – 9 December 2018 – LS Trader

Volatility has been the order of the day over the past week with huge moves and swings seen in many markets. This week has seen a change of long-term trend for interest rate futures, which are now in a long-term uptrend. Gold could also be on the verge of a change of trend to up over the next week or so. Seasonally, we’re in a strong time of year for stock indices and Gold.

Stocks

Stock indices have seen colossal volatility this week as the rally stalled once again almost exactly at the 61.8% retracement level of the September to November decline. The long-term trend remains down for global stock indices, and we could see new lows for the current move completed this week.

This Friday is quarterly stock index futures expiration, so the December contract will roll forward to March.

Commodities

The metals markets continue to show signs that they may have bottomed and are heading for a change of long-term trend to up. Palladium, the only one of the metals currently in a long-term uptrend, continues to lead the way, having printed new all-time highs this week. Gold could be on the verge of an upside breakout and change of trend as early as this week.

Volatility has been high in the energies this week with a series of indecision bars, known as high wave doji. These patterns print when the market has a long upper and a long lower shadow and closes the day reasonably near to where the day opened. It represents total indecision on the part of market participants. If markets break above last week’s highs that will suggest that the downtrend is over for now, but as long as markets remain below those resistance levels, the downtrend remains intact.

The exception to this is Natural Gas, which remains in a long-term uptrend. It’s possible that the market is printing a half-mast pennant, which would project to north of the 6.000 level if completed, depending on where the actual breakout level is.

Currencies

This week saw GBP/USD break to a new low for the current move, printing its lowest level since June 2017. Much of that is to do with Brexit uncertainty ahead of the Parliamentary vote on Tuesday. Volatility remains low, but we can expect to see that pick up this week.

The Dollar Index has seen some weakness this week, as has the dollar against the Euro. The long-term trend continues to favour the dollar against all the majors except for NZD/USD.

This Friday is quarterly currency futures expiration, so the December contract will roll forward to March.

Interest rate futures

From last week: “commercials hold a huge net long position, based on COT data, which means they continue to position for lower, not higher, interest rates (interest rate futures move inversely to rates). For now, the long-term trend remains down, but upside breakouts and changes of trend for a few markets in the sector are within range.” Interest rate futures finally rallied sufficiently to complete a change of trend to up for all markets in the sector except for the long bond. The long-term trend is now up for interest rate futures.

Good trading

Phil Seaton

LS Trader

Weekly Update – 2 December 2018 – LS Trader

Stock indices have continued their recent corrective rally, but all remain in long-term downtrends. Commodities remain weak overall, while the dollar uptrend remains intact. Interest rate futures remain in a long-term downtrend but continue to gain strength, with a possible change of trend to up on the horizon.

Stocks

From last week: “This is a bullish time of year seasonally, but the current technical picture takes precedent, especially the primary trend.” Stocks continued their corrective rally this week, and the Nasdaq 100 broke resistance late on Friday night. December is a strong month seasonally for stocks, but the long-term trend is still clearly down.

Commodities

The energy markets continue to get destroyed, but there are signs that the aggressive downtrend may be about to take a pause, as momentum is slowing, there is bullish divergence between price and RSI, and volatility has remained at elevated levels. However, the long-term trend remains down for all markets in the sector except for Natural Gas.

Currencies

The uptrend for the dollar remains intact. The Dollar Index may rally to test recent highs this week. There are also possible breakouts for the dollar against a handful of majors, which includes GBP/USD. GBP/USD closed on Friday just above a critical support level. The long-term trend is down, and the RSI is in the bear range, where it has been for the past several months. Interestingly, volatility in GBP/USD is at a low level, something that is likely to change over the coming week or so.

Interest rate futures

Interest rate futures continue to show signs that they have bottomed. As we have written several times over the past few months, commercials hold a huge net long position, based on COT data, which means they continue to position for lower, not higher, interest rates (interest rate futures move inversely to rates). For now, the long-term trend remains down, but upside breakouts and changes of trend for a few markets in the sector are within range.

Good trading

Phil Seaton

LS Trader