Weekly Update 6 March 2016 – LS Trader

The past week has seen the move back towards risk-on in the financial markets continue, with stocks and commodities moving higher at the same time as interest rate futures and the dollar have been in decline.

The long-term trends remain down for stocks and down for most commodities, although there are a few exceptions, notably Gold, with Silver not that far behind. The dollar’s weakness has been sufficient to trigger a change of long-term trend in the Aussie dollar, with other currencies still lagging behind. The trend in the currency markets remains mixed. In spite of short-term weakness, all the interest rate futures remain in long-term uptrends.

Stocks

The stock markets have continued their impressive bear market rally this week. The rally is still viewed as a bear market rally and mostly short-covering rather than new buying because volume is decreasing as the rally continues. This indicator suggests that the rally may be mature and might not have that much further to run. Considering that the S&P 500 has rallied above the 200-day moving average this week, it is unlikely that many shorts remain. Further strength will likely require fresh buying, rather than short covering.

So far, only the S&P 500 has been able to move above the 60 level, which is bear market resistance. As yet, that breakthrough has not been decisive, and further strength will be required. The other indexes that we trade at LS Trader are all weaker and are still below that key level. If each of the indexes break above 60, that would indicate further strength, but considerable further rally will still be required for a change of long-term trend. For now, the long-term trend remains down across the sector.

Commodities

Having been in a deep bear market for the past few years, there are signs in some markets that life could be returning to the commodities markets. Gold, in particular, is advancing nicely and is already back in a long-term uptrend. The other metals are still lagging, but strength is evident in Silver, Palladium and Copper. Silver is the next most likely to complete a change of trend to up, with Copper not that far behind. Palladium still has some way to go.

Currencies

The dollar has seen some weakness this week against several currencies. This weakness has already been sufficient to trigger a change of long-term trend in the Australian dollar. The New Zealand dollar could follow suit this week. It’s interesting to note that both of these currencies are commodity-based currencies, which goes to bolster that view that strength is returning to some commodities markets. Such a move is also consistent with a return to risk-on in the financial markets, something that is also being seen in stocks.

In line with overall dollar weakness, the dollar index itself moved lower this week as the RSI once again was unable to break through the 60 level, keeping it in the bear range. This weakness took the index down through its 50-day moving average and further lower to test its 200-day moving average, which has so far held. Next week should be an interesting week for the dollar. It’s also a week that sees quarterly currency expiration, so the March contracts roll forward to June.

Interest rate futures

Interest rate futures have continued their recent weakness this week, which is consistent with the current risk-on mood. However, it should be noted that the long-term trend is still very much up across the sector.

The 10 Year T-Note has fallen to test its 50-day moving average, and the 5 Year T-note has already dropped slightly below it. However, all markets remain considerably above their 200-day moving averages and major trend-defining support. The shorter-term markets in the sector are the weakest and are testing the 40 level on the RSI, which is bull market support.

Good trading

Phil Seaton

LS Trader

Weekly Update 17 January 2016 – LS Trader

The brilliant start to the year for the LS Trader system has continued this week, with several markets making significant moves. This has resulted in the system generating excellent profits after only two trading weeks of the year.

Stocks have continued their decline, as their very poor start to the year continues to get worse. The same goes for the energy markets, which, with Crude Oil moving below $30, are now at twelve-year lows. The dollar has gained against most of the majors and remains in a long-term uptrend overall. Interest rate futures have also rallied and may be headed for a test of their 2015 highs.

Stocks

Stocks have continued sharply lower this week and are now close to testing their August 24th lows. The January Barometer, which states with an 87.7% accuracy ratio that as goes January, so goes the end of the year, cannot be assessed until January ends. However, unless we see a major turnaround over the next two weeks in the stock markets, it’s highly likely that stocks will end the month lower, which points towards a bear market in stocks this year.

However, much more important that any seasonal historical tendency is the current market trend, which is firmly down for all the stock indexes that we trade at LS Trader with the exception of the Nasdaq 100. The Nasdaq 100 has been the strongest index for much of the past year, but even that is calling sharply and is heading for a test of trend-defining support.

The Nikkei, which is the weakest of the four stock indices that we trade at LS Trader, has already fallen below its 24th August low and printed its lowest price since October 2014 this week. The area around last week’s low could represent significant support, which if broken could yield considerable further declines.

Commodities

The energy bear market has continued this week with Crude Oil moving below $30 per barrel. With the exception of Natural Gas, all the energy markets fell to new multi-year lows this week. Crude Oil made its lowest print since late 2003.

Heating Oil dropped to its lowest level since 2004, but RBOB Gasoline is still above its late 2008 low. That low basis the continuous contract is at 0.8210, still some 2000 points below Friday’s close. The RSI has dropped to 29.47, which is a bearish reading, but far from an extreme level. There is still, therefore, further room for decline.

In spite of an increased level of fear in the markets due to declining stock and energy prices, gold has not seen any significant rally and remains in a long-term downtrend, as do the other metals. Palladium and Copper, in particular, have been weak, both falling to multi-year lows.

Currencies

It’s been a good week for the dollar with gains being seen against nearly all the majors. The dollar fell against the Yen to its lowest level since August the 24th, and that level could be seen this week. The dollar also had a mixed week against the Euro, and this kept a lid on gains for the dollar index.

The British Pound saw further weakness this and remains on course for our target, the 2010 low at $1.4015. We will reassess lower targets should that level be reached.

Interest rate futures

The interest rate futures made further gains this week as the long-term uptrend continues for the sector. The long-term trend remains down only for the 30 Year T-Bond, which continues to lag the other markets in the sector. However, a change of trend for the long bond could be seen this week. Whether we see the sector rally further towards their 2015 highs remains to be seen.

Good trading

Phil Seaton

LS Trader

Weekly Update 2 March 2015 – LS Trader

New all time highs were seen this week in both the S&P 500 and the Dax, but the latter remains the stronger of the two. The dollar continues to consolidate but there have been gains in the dollar index and a test of the recent high may be at hand, as well as a test of the major recent lows in the Euro. Trading for the most part remains relatively quiet but there are signs that several moves are building up ahead of a breakout. Potentially large moves could lie ahead in various markets.

The long-term trends remain as they have for quite some time and are still up for stocks (the LS Trader system remains long all 4 stock indices that we trade) up for the dollar (we have very profitable open trades in the Euro and the dollar index), up for interest rate futures and down for commodities. The commodities markets are also currently providing a handful of excellent open trades to the short side, but there are signs that some commodities markets may be bottoming out and forming basing patterns ahead of potentially large bounces in the weeks and months ahead.

Stocks

The Dax continues to be the strongest of the 4 stock indices that we trade at LS Trader and this week posted new all time highs and also made a new all time high close. The RSI is at a very bullish 76.86 and sentiment remains extremely elevated, at 95% bulls. Although such bullish extremes are often seen at or near the end of moves, sentiment was also at 95% a month ago, but the Dax has rallied an additional 600 points since then. Elevated sentiment in and of itself is not a reason to bail out of a strong trend.

The S&P 500 also printed new all time highs but no follow through has been seen and the market closed marginally lower for the week. We can look for the area around the late December 2014 highs to provide support, as prior resistance becomes support, but should that support fail to hold, lower prices may be ahead, but it would take significantly lower prices to put much of a dent in the long-term uptrend.

Last week we suggested that a test of the all time high at 4884 for the Nasdaq 100 was beginning to look like a real possibility, and that remains the case. Whether it happens in the current move remains to be seen. This week has seen new highs posted for the current move but also a loss of momentum. Whether there is enough left in this market for the remaining 400+ points required to complete the recovery from the March 2000 all time high remains to be seen, but for now the trend is unquestionably up and bullish.

Commodities

During the past week we exited a very profitable short lean hogs trade that banked an excellent 2002 points profit in just under 3 months since our original entry on the 5th December. Hogs rallied sufficiently to break above resistance, but the long-term trend still remains bearish and the RSI is also in the bear range, so another move back to new lows cannot yet be ruled out.

Coffee is another excellent short trade and one that is still open. Here too we have over 2000 points profit on the open position as the coffee market has fallen to its lowest level in just over a year. Sentiment however is extremely bearish at just 3% bulls, which is the lowest level in 12 years. That does not guarantee a bounce but does suggest that the market is overextended in the short-term.

Currencies

The dollar index broke out of the triangle and as we suggested last week, such a move would be bullish and would suggest that the rally was not complete and that new highs were ahead. The move has so far taken the index to within 50 pips of its January high and that level may be tested this week.

The Euro, which is a near-perfect inversion of the index declined this week and may also drop to new lows below its January low.

Interest rate futures

Interest rate futures rallied somewhat this week and corrected some of the recent decline, which in terms of the 30 year T bond was just over 50% of the decline from the January 30th high. The long-term trend is still up for the sector but as we covered last week, the RSI had moved down into the bear range. A decisive move back above 60 on the RSI would change that, but whether these markets can recover back to new highs remains to be seen.

Good trading

Phil Seaton

LS Trader

Weekly Update 28 December 2014 – LS Trader

The past week, which has been a shortened week due to the Christmas holiday, saw the S&P 500 post new all time highs yet again. The dollar has also gained and the energy markets have continued recent weakness.

There’s just 3 trading days left of 2014 and on the basis of strong seasonal tendencies for stocks we may see further new all time highs and possible breakouts for the remaining global stock indices traded by LS Trader, each of which are within range of new highs for the year.

The LS Trader system is poised to have its best year since 2008, and regardless of what happens in the next 3 days the system’s returns for the year will be well into triple figures. This has largely been due to a return to strong trending markets across several sectors, in particular the bear market in the energy sector, and is something that we think will continue overall for some time yet.

Stocks

Barring a flat close on Christmas Eve, the S&P 500 would have made a pretty rare feat of closing higher for seven straight trading days. The Dow 30 did manage this feat with seven consecutive higher closes, which has not ben seen since the Dow made 10 higher closes back in early March 2013. Trading volume has been extremely light with Boxing Day trade being the slowest full-day volume of 2014 so far.

From last week on the S&P 500 “A move above last week’s all time high with a clear move above 60 (RSI) would suggest further strength in line with the strong seasonals and Santa Claus rally.” The S&P 500 did post new all time highs and the RSI also moved above 60, ending the week at 63.46, which has the RSI back firmly in the bull range. Further strength looks likely over the week ahead. Historically the Santa Claus rally runs through to the first 2 trading days of the New Year so does not end this year until the 5th. Whether the rally continues that long (or even longer) remains to be seen.

Commodities

Both gold and silver continue to trade within the middle of the recent trading range. The long-term trend remains down for both metals and sentiment is also at low levels. Friday did however see a decent rally for both precious metals but considerable strength will be required for a change of trend to up. The RSI is in the bear range on both markets and should further rally be seen, resistance may be found around the 60 RSI level.

The energy markets have continued lower with all 5 markets making new low weekly closes for the current bear market. Natural gas really accelerated lower having gapped lower at the open on Monday and continuing lower throughout the week. The LS Trader system is of course naturally short all 5 energy markets, each of which are hugely profitable at present.

Currencies

The dollar index this week printed above 90, a level not seen since 2006. This rally has now retraced just pips over the 38.2% retracement level of the decline from 120.99 printed back in July 2001 and bullish sentiment is up to 91%. The dollar trend remains bullish across the board and higher levels cannot be ruled out.

The inverse of the dollar index is the Euro, which this week fell to its lowest level since mid-2010. Here sentiment has dropped to very low levels and is down to single figures. That does not mean that further weakness cannot be seen as we have seen similar low bullish sentiment earlier this year and the Euro continued to fall. Unsurprisingly the RSI has dropped to a bearish 35.83. There is also bullish divergence between price and RSI from early October to current levels.

Interest rate futures

Interest rate futures have moved lower this week but for now the long-term trend remains up across the sector. The RSI remains in the bull range but only just in the case of the 5 year T note which is holding just above the 40 support level. Should 40 be broken on the RSI we may see further weakness sufficient to lead to a change of trend to down in the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 20th April 2014 – LS Trader

In last week’s LS Trader update we wrote that critical support tests were on the horizon for the dollar index and Nasdaq 100 and Euro, and suggested that these levels could have a key influence on the direction of several markets over the coming weeks. These levels were tested and each held firm, keeping the prior trends intact. Stocks and the dollar both rallied from their respective support levels. This leaves the long-term trends intact and they stand as previously, mixed for stocks, currencies and commodities, but still up for interest rate futures.

Stocks

From last week on the Nasdaq 100 “3405 looks set to be tested this week and the market’s reaction at that level may determine prices over the coming weeks.” This level held firm and as mentioned above, a strong rally followed, keeping the long-term uptrend intact. The Nasdaq 100 does thigh remain over 200 points below its high of the year, so considerable further rally would be required for new highs to be established. The current waning momentum at this stage suggests that may be unlikely and that a break of support and change of trend to down is more probable over the coming weeks.

The S&P 500 also put in a decent rally, as indeed did the Dax and Nikkei. The S&P 500 remains the strongest of the 4 indices we trade at LS Trader and is the most likely to test the local top, which in the case of the S&P 500 is the all time high, currently at 1892.5 basis the June e-mini contract. The Dax’s rally has returned the market to the middle of the recent range, which has been in place since January, so a reasonable move in either direction will be required for a breakout. The Nikkei, currently the only one of the 4 indices in a long-term down trend may test resistance in the coming days.

Commodities

Crude oil reached its highest level since September last year but has dipped back below resistance following the breakout.  No leaded gas also pierced resistance and reached its highest level since August and this keeps the long-term trend up, as indeed it is for all of the major energy markets at present.
There has been little to write about in recent weeks on gold and silver, but both moved lower this week with gold in particular making a sharp move lower. Silver also dropped to its lowest level in several weeks and remains close to a test of key support. The long-term trends in the metals sector are mixed, and are up for gold and palladium, and down for copper and silver.

Currencies

The 2 key levels in the forex markets that we have been writing about recently, 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937 both remained intact as the dollar strengthened. However, the dollar’s rally has been far from impulsive and has been characterized by small real bodied candles on the daily chart, so conviction is far from present in these markets. Another test of support and possible break to new lows still remains on the cards.

The inverse of the dollar index is the Euro, which pulled back from resistance, but as with the dollar index, still remains within touching distance of a breakout. Should a breakout in either market occur, it will hopefully be confirmed by a breakout in the other market, as that will likely give legs to any subsequent move. A breakout in one unconfirmed by the other would suggest a reversal and a return to the prior range might follow.

Interest rate futures

The long bond, currently the strongest market from the interest rate futures sector rallied initially but then saw some weakness as the week progressed, which culminated in a move lower on Thursday, the last trading day of the week. The long-term trend is still up for the long bond, as it is for all of the interest rate futures markets that we trade at LS Trader, but the 5 & 10 year T Notes both sold off throughout the week, as did the 3-month Eurodollar.

Good trading

Phil Seaton

Weekly Update 13th April 2014 – LS Trader

Both stocks and the dollar declined this week and critical levels look set to be tested in the coming days. Critical support tests are on the horizon for the dollar index and Nasdaq 100, and critical resistance for the Euro may also be tested. These levels collectively could have a key influence on the direction of several markets over the coming weeks, so market price action could really bet set to heat up soon.

For now the long term trends are mixed for stocks, currencies and commodities, but still up for interest rate futures.

Stocks

The S&P 500 fell to its lowest close in 8 weeks and this led to a drop below key support at 1823.5 and the key 40 level on the RSI, meaning that for the short-term the trend has turned to down. The long-term trend remains up but for the first time in a long time a change of trend to down is potentially entering the picture. Considerable weakness will be required before that happens but it’s the first time that we have been able to talk about this in months.

Last week we wrote that the Nasdaq 100 had been making a series of lower lows and lower highs, which is technically a bear market set-up, and this continued this week. We also wrote that a move lower to 3405 looked increasingly likely based on the market’s structure and the declining RSI, which had entered bearish territory. 3405 looks set to be tested this week and the market’s reaction at that level may determine prices over the coming weeks. A fall and close below 3405 may see the index shed a further 100 points in fairly short order.

The Nikkei continues to be the weakest of the 4 indices we trade at LS Trader, and this week the Japanese index broke key support and fell to its lowest level since last September. Decisive follow through has yet to occur but that may follow.

Commodities

Last week we wrote that Palladium “should be good for further strength through the 802.45 March 24 high”. Weakness was seen on Monday but another 4 day rally followed and a break above the March high was seen on Friday. Further rally towards 870, the August 2011 high may now follow.

We finally exited lean hogs, which was the biggest winning trade so far this year for the LS Trader system, making a total of 1987 spread betting points profit from the trade since we entered back on the 21st of February. This trade slightly exceeded profits banked earlier this year from oats and coffee, 2 other big winning trades so far this year.

Soybeans and soybean meal once again reached their highest levels since our data began for these markets, going back since 1968 basis the back-adjusted continuous contract. However, both pulled back during the last 2 days of the week but the trend is still up.

Currencies

In recent weeks we have been writing about the 2 key levels in the forex markets, 13966 for the Euro basis the June contract, and the key low for the dollar index at 7937. The dollar index basis June came within a couple of pips of that critical support level before moving slightly higher. This level will likely be tested again in the coming days, as may possibly the 13966 high in the Euro.

Interest rate futures

Interest rate futures rallied across the board, led higher by the long bond, which broke through key resistance as expected. This took the long bond to its highest level since June last year, took the RSI above 60 into bull market territory in the process and moves the target higher to the next level of technical resistance around 13650.

Good trading

Phil Seaton

Weekly Update 3rd June 2013 – LS Trader

In last week’s update we wrote that the all time highs posted on May 22nd may prove to be the market top for the time being and this week’s price action is so far confirming that view. The indices look set for further weakness in what may eventually end up developing into a sharp decline. If stocks do correct as we expect, the dollar rally will likely resume and commodities fall. Opportunities abound over the coming weeks.

Stocks

The S&P 500 has continued with weakness and looks set to test and break short term support, followed by a likely decline further to the 50 day moving average, currently around 1600. As we wrote last week, price action has as yet not terminated the uptrend, but we may look back in time and see that the May 22 high was the top. Time will tell, but for now the trend is still up.

From the indices that we trade at LS Trader, the Dax and the Nasdaq 100 have held up the best. The Nasdaq has drifted sideways to lower with indecisive price action. A test of support looks likely this week, and the same can be said of the Dax.

Last week we wrote that the Nikkei looked set to continue its decline lower to 13,695. The Japanese index actually declined lower than that level and looks set to continue lower. Price action continues to suggest that a major top was seen at 16,050 on May 22. The long-term trend remains is still up but the recent decline has put a major dent in that.

Commodities

Gold edged higher this week but the rally has not been too convincing and has been unconfirmed by silver, which ended the week down. Whether we see new lows again during this coming move remains to be seen as price action in the short term is very indecisive. The trends are still clearly down for both metals so the odds slightly favour lower prices.

Last week we wrote on Lumber that the highs of this year at 409 may be a multi year top and that we could expect lower prices longer term, but a bounce may be seen near term due to the extent of the recent decline. Lumber did continue sharply lower, but then an equally sharp bounce followed. How far this bounce continues for remains to be seen but the trend is still clearly down.

The grains markets remain mixed, but soybeans and soybean meal continue to lead the way higher. The trend is still mostly down for this sector but some strength has been seen in a few of the grains markets in recent weeks. Longer term, grains prices still look likely to be headed lower.

The energy sector has been particularly weak with no sign of a change of trend to up anywhere in the near term. Therefore we can expect to see lower prices, especially if support levels are taken out.

Currencies

The dollar has had a mixed week, which in some markets has seen a continued correction, but other markets have seen the dollar continue to rally. Certainly at present the long-term trends very much favour the dollar across the board and a larger, extended rally will likely be seen over the coming weeks and months.

There is considerable weakness in the commodity currencies, in particular the Australian dollar and the New Zealand dollar. Weakness in these markets will likely continue if commodity markets continue to decline as we expect.

Interest rate futures

Interest rate futures were lower across the board once more and key support was tested and taken out as expected. The trend is now down for most markets in this sector but the extent of recent selling led to a decent bounce at the end of the week. As has often been the case recently, the 30-year Bond led the decline and has been the weakest market in the sector. The short-term 3-month markets were also lower.

Good trading

Phil Seaton

LS Trader system update 10th February 2013

After a bit of a dip earlier in the week, the S&P 500 rose again to new 5 year highs and is now just a few percentage points off all time highs posted in 2007. U.S. markets overall remain strong, particularly the S&P 500. The Dow 30, which is not a market that we trade at LS Trader, but is still nonetheless a major index, is grappling with resistance at 14000. With all time highs just over a couple of hundred points away, strong resistance at present levels can be expected.

The long term trends are up for stocks, mixed for commodities and bonds, and mostly down for the dollar.

Stocks

Big selling hit the Dax on Monday, bringing the uptrend to an end, at least for the time being. The longer term trend however is still very much up and we may yet see new highs for the year, especially if U.S. and Asian stocks continue to advance.

The S&P 500 ended the week higher by 0.38%, with a new high weekly close for the current move as the market tries to stabilize above 1500. The weekly charts show a hanging man pattern, which is typically bearish, but also shows that any declines below 1500 are being short lived and met with new buying.

Of the 4 stock indices that we trade at LS Trader, only the Nasdaq 100 is in a long term downtrend. This is certainly a cautionary note for stock bulls as generally the most bullish advances for stocks are led by the Nasdaq, which currently is the laggard and is still almost 100 points of its recent multi-year high, whereas the S&P 500 is continually making new multi year highs. This is certainly some bearish divergence.

The Nikkei also hit new multi year highs during the past week but fell back on Thursday and Friday. These losses may well be recovered early next week.

Currently it seems that investors want out of bonds and into equities so all time highs for the S&P 500 in 2013 are a distinct possibility.

Commodities

It’s been a fairly indecisive week for the metals markets with gold and silver still remaining range bound. Even the leading two metals markets, copper and palladium lost ground this week. However, the trend is still up across the sector.

Brent Crude continues its recent good run, this week reaching its highest level since March last year, following an advance of 1.83% for the week. Gasoline and heating oil were also higher but US light crude, which along with natural gas is still in a long term downtrend, ended lower by 2.1%.

The grains sector overall has seen renewed weakness and the expected bear market decline that our proprietary trend analysis at LS Trader indicates may well be about to begin the next leg lower. Several of the grains markets are looking under pressure once more with only rough rice remaining in a long term uptrend.

Currencies

The dollar had a good week as indicated by the 1.49% weekly advance for the dollar index. The sharp drop in the Euro, which ended the week lower by 2.19%, influenced this dollar index advance. On the weekly chart, the Euro has printed a large bear sash pattern, which suggests strong resistance at the highs of the pattern at $1.3715.

The dollar reached our long term target at 9400 before pulling back to end the week almost flat, forming a doji star on the weekly charts. This is typically an indecision pattern and points to a pause in the current uptrend. As we have written several times over the past few weeks, a correction is due, especially following a 13 week advance.

Interest rate futures

Interest rate futures were mostly higher this week having earlier fallen to new lows for the current move before recovering those losses.

As we have written in recent weeks, when everyone is so bearish on a market or a sector, the move usually falls well short of expectation. Already after only a couple of weeks following the break of critical support have buyers come back in to the market, so it remains to be seen how much further the current move has to run to the downside. It may be that we have to wait a little longer before we see an extended move to the downside.

The long term trend is down for the 10 year T notes and 30 year T bond, but is still up for the shorter term markets. An extended move will not happen until the long term trends all align across the sector. This means weakness must enter the shorter term markets as well. So far this has not happened.

Good trading

Phil Seaton

LS Trader Weekly Update – Monday 21st May 2012

Stocks have continued their recent decline and this week has seen some sharp moves lower. The long-term trend for stocks is still up but that may not continue for much longer if this weakness persists. Stock weakness has as ever been met with demand for the dollar, which continues to rise. Commodities overall have continued to suffer although there have been some exceptions, the trends are mostly down for commodities.

Stocks

Last week we wrote: “The S&P 500 broke out of the box range with a break of support at 1350. This pattern would point to a move lower towards 1290 but first key support at 1340 needs to be taken out.” 1340 support gave way on Monday and there was no looking back as the S&P fell to 1289.9 just as we said it might. Due to change of polarity, 1340 should now act as resistance and may help to pressure t he market lower should any rally attempts reach that high and fail. The trend still remains up for the S&P 500 in the long term but that may change. The 200-day moving average at 1265 remains a very viable downside target.

Of all the indexes that we trade at LS Trader, only the Nikkei is below the 200 day moving average. The Dax has tested it this week and has so far bounced off it, but it remains a target for both the Nasdaq 100 and the S&P 500. If all the indexes move below the 200 MA we may see considerably more selling.

One thing to note is that the VIX is on the rise having made an upside breakout this week and has reached its highest level this year. This is an indication the fear is returning to the stock markets and that people are paying larger premiums to protect their stock portfolios from downside risk. The 30 level has been quite an important level for the VIX over the past couple of years and that may be where we are heading next. If the V IX does reach 30, stocks will be lower.

Commodities

For the past few weeks we have been writing about our downside target of $1528.6 for June Gold. This level was reached this week and it has been met with buying. A fairly decent rally has followed from there but how much further the rally can continue for remains to be seen. The long-term trend is still down and the market continues to form lower highs and lower lows. Clearly last week’s lows are now key support as they match up with the late December lows and will be needed to be taken out for the downtrend to continue. If support here can be cleared the next downside target would be $1494.

Crude was sharply lower this past week, ending with a weekly decline of 4.86% and easily falling through our target of $93.50. The next target will be $90 and subsequently $85 if $90 fails to hold. The trend is down for Crude as it is also for Heati ng Oil. Only No leaded gas is still in a long-term uptrend but that may also change in the not too distant future.

Currencies

We wrote last week “the Euro had made a downside break from a descending triangle so we can take the height of that triangle and subtract from $1.30 to give a target of around $1.26, or more accurately $1.2640, which are the lows of the year.” The Euro fell to within 4 ticks of this target at 12644 and as expected support has so far come in. This led to the formation of a bullish engulfing pattern on Friday, confirming support from the prior lows back in January. However, the trend is still very much down and should the Euro rally from here it is likely to meet very stiff resistance at the prior support zone between $1.2975 and $1.3000.

The commodity based currencies continue to take a heavy hit and even the Canadian dollar, the strongest of the 3 commodity based currencies ended lower by 2.11% for the week. This brings a long-term change of trend to up for USD/CAD into range. This past week saw the Aussie dollar give a confirmed change of trend to down and the 9600 level will be the next downside target.

Interest rate futures

The trend for interest rate futures continues to be up but there are signs once again that the markets may be reluctant to push much higher from here. The 5-year T-note formed a dark cloud cover and was subsequently followed by a couple of doji, so indecision is certainly present at current levels. A close below the prior resistance levels, which should now be providing support due to change of polarity, would be short-term bearish and may lead to a correction. The 10-year T-note is holding up better than the 5-year, and the 30-year T-bond also had a strong week but both have a hanging man pattern formation on Friday’s daily chart . This is potentially a short-term bearish reversal, which would be confirmed by a close below the low of the hanging man patterns.

Good Trading

Phil Seaton

LS Trader Weekly Update – Monday 14th May 2012

Stocks have continued the seasonal May weakness and only the Dax has managed a small gain from the stock indexes that we trade at LS Trader this past week. All the indexes are now some way below their 50-day moving averages but the long-term trend is still up.

The dollar continued recent strength and advanced across the board taking out some key levels in the process. The dollar index now looks poised for a breakout higher and this may lead to continued weakness for commodities and further pressure stocks. The long-term trends are now mainly down for the commodities markets with only few exceptions but still remain up for stocks.

Stocks

The S&P 500 broke out of the box range with a break of support at 1350. This pattern would point to a move lower towards 1290 but first key support at 1340 needs to be taken out. 1340 is significant as it was a prior resistance level from the highs of 2011, formed almost a year ago. This resistance level is clearly visible on the weekly chart, and due to change of polarity, prior resistance becomes support. It is interesting to note that this level was respected this week with the low of the week being at 1339.5 before closing higher at 1350. For now though the long-term trend is still up.

The Dax has been the most bullish index of the week, being the only index to manage a gain. Following a sharply lower open on Monday, strong buying ensued during the day, forming a meeting lines pattern. The Dax was able to hold support from the lows of the week and end ahead by 0.30%. This suggests good support at last week’s lows around 6370. As with the S&P 500, the Dax has a change of polarity from last year’s highs at 6471, so the attempt to move below that level was rejected.

The Nasdaq 100 did move below 2625 but held up just above the 2575 lev el that we wrote about last week. The trend remains up.

The German Dax did push above 6800 on an intra day basis but was unable to close above that level and subsequently moved lower once again and now looks to be headed for a test of the lows of the current trading around 6500. Just below this is a further support level created by the change of polarity from the October highs, so a key support zone is in play for the week ahead. For now the trend is still up but the market’s reaction at this support zone will provide a clue as to near term direction.

Commodities

Last week we wrote on Gold “A test of the April lows at $1613 looks likely and if that support level fails then a move to the year’s lows at $1528.6 would become the target.” Gold sailed through $1613 support and ended the week down by 3.72% for the week before closing out at $1584. The year’s lows as $1528.6 may now be the next destination is there is not much in the way of support between here and the current price.

Crude did test and move below the 200-day moving average and also got a bounce higher before moving lower once again. This bounce was not all that surprising considering the extent of the decline in such a short period but the trend is now down and if last week’s lows can be taken out the next target will be circa $93.50.

Overall commodities are heading lower at present.

Currencies

We wrote last week that a few key support and resistance areas would likely be tested in the week ahead and that is what happened. As we have been writing of late, no support level was more important than the $1.30 level on the Euro and that gave way. That also meant that the Euro had made a downside break from a descending triangle so we can take the height of that triangle and subtract from $1.30 to give a targ et of around $1.26, or more accurately $1.2640, which are the lows of the year.

The dollar was higher across the board and this has led to the dollar index moving right to the top of the recent range with a breakout likely in the week ahead. Such a move would likely lead to continuing gains for the dollar against the major currencies and would put stocks and commodities under further pressure.

The commodity based currencies continue to be hit as a move back towards the risk-off trade has been evident, hence the move out of the riskier currencies and into the U.S dollar.

Interest rate futures

Interest rate futures were higher for the week with the exception of the 3-month Eurodollar. The 5 & 10 year T notes both reached record highs and the laggard of the longer-term markets, the 30-year T Bond also pressed higher. There are signs however of waning momentum and higher prices ar e being rejected intra-day as seen by the long upper shadows. The trend remains up but the upside may be limited, especially for the 30 year Bond.

Good Trading

Phil Seaton