Weekly Update – 29 March 2020 – LS Trader

Stocks

From last week: “Markets are reaching a volatility extreme, and there is also momentum divergence between price and RSI. Therefore, a corrective rally, which may be sharp, could begin over the next week or so. Such a rally could retrace around 38% of the decline from the all-time high printed on the 20th of February. Measuring from Friday’s low on the S&P 500, that would suggest a rally to the region of 2637. We may then see the next leg down to exceed the current lows.”

The markets rallied sharply as expected. The S&P hit a high of 2634.5, just below our target of 2637, before closing lower on Friday. We may see further strength over the coming week or so before the primary downtrend resumes.

Commodities

The energy markets appear to be trying to bottom. RBOB Gasoline leads the way to the upside, and we exited our short position this week, for the biggest winning trade of the year to date.

The metals markets continue to swing wildly. The long-term trend for metals is currently down.

Currencies

The Dollar Index sold off sharply this week as the dollar gained against the majors. The long-term trend continues to favour the dollar but a change of long-term trend is within range for the Dollar Index should weakness persist.

Interest rate futures

Interest rate futures have seen some strength this week. The shorter end of the curve remained above support, and the uptrends are intact. The 10 Year and 30-year T-Bond have also rallied this week. Whether they make it back to new highs remains to be seen.

Weekly Update – 22 March 2020 – LS Trader

The LS Trader System hit new all-time highs for the second consecutive week as high volatility and market trends persist.

Stocks

Stocks fell to new lows this week, falling below the December 2018 low as expected. This is likely to be just the first leg down in a broader bear market. New low weekly closes tend to persist with weakness the following week, so new lows are likely.

Markets are reaching a volatility extreme, and there is also momentum divergence between price and RSI. Therefore, a corrective rally, which may be sharp, could begin over the next week or so. Such a rally could retrace around 38% of the decline from the all-time high printed on the 20th of February. Measuring from Friday’s low on the S&P 500, that would suggest a rally to the region of 2637. We may then see the next leg down to exceed the current lows.

From a longer-term perspective, it would not be unreasonable to expect the 2000 level on the S&P 500 tested. From a bigger picture perspective, a 38% retracement of the entire 2009 to 2020 rally would see a decline to around 1606. It will not surprise me if we see those levels before this sell-off ends.

Currencies

From last week: “The Dollar Index opened the week sharply lower but then put in an even sharper 4-day rally, and will likely test the highs of the year this week.” The Dollar did rally, and the index, based on back-adjusted continuous futures, reached its highest level since 2003.

Interest rate futures

From last week: “Interest rate futures rallied to a new high on Monday, but the sold off. The long-term trend remains up, but support could be tested this week.” Support was tested and broken on the long bond and ten-year T-Notes. However, the shorter end of the curve held above support and remain in uptrends.

Weekly Update – 15 March 2020 – LS Trader

It’s been another great week in the markets and one that has seen the LS Trader System hit new all-time highs.

This week ahead sees the US Federal Reserve meeting. Current market expectations are for the Fed to cut rates by another 75 basis points and possibly more. They are expected to get to zero by the end of the year and stay there.

Stocks

It’s been a wild week with huge swings daily, which included the second biggest down day in history. It also saw the 10th largest up day for the Dow on Friday. Expect more wild swings this week.

Commodities

From last week on energies: “However, by our proprietary measures, volatility in the sector is not yet at an extreme, so the downtrend does have room to run.” The energy sector collapsed at the open on Sunday night with a huge gap lower. The market found support at Monday’s low and has bounced a bit higher, but remains in a steep downtrend.

Currencies

The Dollar Index opened the week sharply lower but then put in an even sharper 4-day rally, and will likely test the highs of the year this week.

Interest rate futures

From last week: “Sentiment on the 30-year T-Bond is at 98% bulls. As of now, there are no reversal setups, but with such extremes, pullbacks are likely.” Interest rate futures rallied to a new high on Monday, but the sold off. The long-term trend remains up, but support could be tested this week.

Weekly Update – 8 March 2020 – LS Trader

Many markets are at or reaching volatility extremes, so we could see some of the recent moves corrected this week with some sharp short-term reversals. However, many of these recent moves have changed the long-term trends, and more will likely follow. Volatile swings are likely to continue for the next week or so. The global macro picture looks bleak, and fear is at extreme levels.

Stocks

From last week: “If last week’s lows are taken out, the long-term trend will turn down.” The Dax was the first index to complete a trend change. Other indices may test trend defining support this week.

Commodities

Commodities continue to make big moves. The energy sector has been crushed, with Crude Oil down 10.07% on Friday alone. However, by our proprietary measures, volatility in the sector is not yet at an extreme so the downtrend does have room to run.

Currencies

The dollar has continued its recent sell-off, and the dollar index has now closed lower in 11 of the past 12 trading days.

Weakness in the dollar has resulted in strength in the Euro, and the January high in EUR/USD has already been exceeded, meaning that the January EUR/USD effect has failed this year.

Interest rate futures

Interest rate futures have gone parabolic, and are accompanied by volatility extremes. Sentiment on the 30-year T-Bond is at 98% bulls. As of now, there are no reversal setups, but with such extremes, pullbacks are likely. However, with yields expected to fall further, higher prices are still very possible.

Weekly Update – 1 March 2020 – LS Trader

Stocks

From last week: “We are possibly at or near to a sentiment extreme. This is evident by the cover of The Economist this week, which has a picture of stampeding robotic bulls for tech stocks. Therefore, we are possibly near the end of the trend and will likely see support tested this week.”

The sentiment extreme cover of The Economist marked the top to the day. The market collapse since then has been huge. Friday saw a bullish one-day recovery rally where the market moved sharply lower and then reversed, leaving a long lower shadow, and closing in the top third of the bar. This would suggest that we may see further strength if Friday’s high is taken out, before additional weakness back to new lows. If last week’s lows are taken out, the long-term trend will turn down.

Commodities

Most commodity markets sold off sharply this week, with metals and energies making big moves to the downside. The sell-off in gold appears to be counter-intuitive during a market crash, but weak hands sell their gold holdings to meet margin calls and offset their equity losses. This often happens in a crisis initially, as the weak hands get taken out. Once they are out, only the strong hands remain, and they bid the market up resulting in the expected behaviour.

Currencies

The dollar sold-off along with stocks, with the Dollar Index closing lower for six consecutive days. The long-term trend, however, is still up for the dollar.

Interest rate futures

Interest rate futures rallied across the board, making new highs in the process. Interestingly, as stocks corrected higher on Friday, interest rate futures did not give much back and made a strong close. The long-term trend remains up for futures.