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.

Weekly Update – 23 February 2020 – LS Trader

Stocks

Stocks rallied to new all-time highs on Thursday, before closing the day lower and lower again on Friday. From a technical perspective, the long-term trends are unquestionably up. However, momentum divergence is evident, and there is also some volatility compression.

Added to this, 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. However, blow-off rallies are often seen at the end of such moves, so a sharp short-term rally can also not be ruled out. As ever, price action is king, and we wait to see what unfolds.

Commodities

From last week: “Gold continues to hold above support around 1550 and remains in a long-term uptrend, with further strength looking likely. A test of 1600 may be seen this week.” Gold exploded from the open and closed higher each day this week, making a new high for the year

Also from last week: “Palladium could be forming a continuation flag pattern, which, if completed, would suggest significant further upside. Volatility peaked on the day of the high and has since been under sharp compression implying that there is plenty of room for additional rally.” Palladium exploded out of the flag and hit a new all-time high at 2751.90. Silver continues to lag but may breakout this week.

Currencies

The dollar showed additional strength this week until Friday. A shooting star pattern printed on the weekly Dollar Index chart, with weakness also evident on Friday’s candle. Naturally, the Euro printed almost the perfect inverse, with a bullish engulfing pattern on Friday.

Interest rate futures

Interest rate futures have also seen continued strength, with rallied back to new highs for the current move being seen in the 3 Month Eurodollar, 10 Year Notes and 30 Year Bonds. The 5 Year Notes may breakout this week.

Weekly Update – 16 February 2020 – LS Trader

Monday is Presidents’ Day in the US, so US markets will be closed.

Stocks

US Stocks opened the week lower but quickly recovered to make new all-time highs.

The Dax completed its breakout and made new all-time highs. The Nikkei continues to lag and is still struggling with resistance around the 24,000 level.

Commodities

Gold continues to hold above support around 1550 and remains in a long-term uptrend, with further strength looking likely. A test of 1600 may be seen this week.

Palladium could be forming a continuation flag pattern, which, if completed, would suggest significant further upside. Volatility peaked on the day of the high and has since been under sharp compression implying that there is plenty of room for additional rally.

Currencies

The dollar has continued to gain ground against most of the majors this week. The Dollar Index has made a new high for the current move and is now at its highest level since January 2017.

Conversely, the Euro continues its decline and is now at its lowest level since September 2002. The next level of support is at 1.0820. Beyond that and parity starts to beckon.

Interest rate futures

The long-term trend remains up for interest rate futures. The 3-bar morning star reversal pattern printed during the prior week continues to provide support and maybe the platform for a launch back to new highs.

Weekly Update – 9 February 2020 – LS Trader

Stocks

Stocks rallied throughout the week until the new all-time high was posted on Friday, and the market closed down for the day, printing a dark cloud cover on the daily chart for the Nasdaq 100. The S&P 500 was a bit weaker on Friday, completing a bearish engulfing pattern. Both patterns suggest weakness for 3-5 days next week, but the long-term trend is firmly up.

The Dax and Nikkei continue to lag and have yet to complete breakouts.

Commodities

Gold fell sharply on Monday and Tuesday and tested support on Wednesday before rallying for the rest of the week, remaining in a long-term uptrend.

The energy markets remain weak overall, with new lows for the current move being posted, as well as some corrective strength during the second half of the week. The long-term trend is down for the sector except for Brent Crude, which may test trend-defining support this week.

Currencies

It’s been a decent week for the Dollar after gains were seen against the majors. EUR/USD violated the January low at 1.1030 this week, meaning that if the January effect is to hold again this year, 1.1293 will not be exceeded and the trend will, therefore, remain down.

The Aussie also fell to a new low for the current move. GBP/USD broke to the downside from a symmetrical triangle pattern and may continue slightly lower. However, the long-term trend is still up for the Pound.

Interest rate futures

Interest rate futures made new highs for the move on Monday but then fell for a few days before reversing from Thursday’s lows. Friday completed a 3-day morning star bullish reversal, keeping the long-term trend up.

Weekly Update – 2 February 2020 – LS Trader

Stocks

From last week: “US stocks rallied to new all-time highs again this week but did see some weakness as the week progressed, which culminated in a bearish engulfing pattern on both the S&P 500 and Nasdaq 100 on Friday. That could lead to additional weakness in the coming days. For now, the markets are above support, and the trend is up.”

The markets gapped lower on Monday, breaking short-term support. They ended the week and the month with a big down day on Friday. The long-term trend remains up, but not the short-term. Friday’s low tested the 50-day SMA.

We now have data in for the January Barometer, which states that as goes January, so goes the year. Historically, this indicator has an 85.5% accuracy ratio since 1950. If this barometer is correct, with January being a down month, so will the year be a down year. However, the long-term trend for global stocks is still up, and if one goes further back before 1950, the overall record is less impressive. Sticking with the trend is more objective.

Commodities

From last week on Palladium: “Prices closed lower on both Thursday and Friday, so although the trend is unquestionably up, the risk of a correction remains and is increasingly probable. Volatility has risen to a level not seen since July 2019.” Palladium did correct as expected, and did so sufficiently to violate support. The exit was our most profitable trade of the year to date.

Currencies

EUR/USD moved lower early in the week but recovered on Thursday and had a strong day on Friday. We now have the January high in at 1.1276 and the low in at 1.1030. Let’s see if the January effect holds for this currency this year.

Interest rate futures

Interest rate futures continued their recent rally, and may now go on to test their August highs. The long-term trend is up for the sector.

Weekly Update – 26 January 2020 – LS Trader

Stocks

US stocks rallied to new all-time highs again this week but did see some weakness as the week progressed, which culminated in a bearish engulfing pattern on both the S&P 500 and Nasdaq 100 on Friday. That could lead to additional weakness in the coming days. For now, the markets are above support, and the trend is up.

Commodities

Palladium shrugged off the attempts to sell the market from the prior week. The heavy selling and low end closes gave the market every opportunity to sell-off, but it did not and rallied again to new all-time highs. Prices closed lower on both Thursday and Friday, so although the trend is unquestionably up, the risk of a correction remains and is increasingly probable. Volatility has risen to a level not seen since July 2019,

Currencies

EUR/USD broke to the downside this week as expected. This increases the chances that the high for January, and the year for the Euro is in at 1.1276 bases the March contract if the January effect is going to hold this year.

Interest rate futures

From last week: “Interest rate futures have moved mostly sideways for the past seven trading days and are undergoing volatility contraction, suggesting a breakout will follow. The long-term trend remains up for the sector, but as before, upside breakouts, as well as trend-defining support, are within range. Both levels happen to coincide with the right shoulder of a potential head and shoulders top, so the break of the neckline would be a downside breakout and change of trend to down. A break above the right shoulder would be a failure pattern and a resumption of the uptrend. This sector could break either way over the coming weeks, and the resultant moves could be sizeable.”

Interest rate futures made the breakout to the upside, meaning that the right shoulder of the head and shoulders top has been broken, so the head and shoulders is a failed pattern. It is also an upside breakout from a multi-month rectangle.

Weekly Update – 19 January 2020 – LS Trader

US markets are closed on Monday due to the Martin Luther King Jr. holiday.

Stocks

US stocks rallied to new all-time highs on Monday and moved higher throughout the week, making a new all-time high close on Friday.

The Dax also printed a slight new all-time high on Friday. The Nikkei, which lags the other global indexes in terms of proximity to all-time highs, is testing resistance and could complete a breakout to its highest level since 1992.

Commodities

Palladium has made a massive rally since the 23rd December low and has moved more than four standard deviations above fair value. Selling tails indicate supply coming into the market on both Thursday and Friday, and a correction may follow in the coming days.

Currencies

EUR/USD and the Dollar Index look to be on the verge of short-term breakouts. These breakouts would be down in the case of the Euro, and up for the Dollar Index. This is in the direction of the primary long-term trend. It remains to be seen whether the high of the month so far at 1.1293 will be the high for January in terms of the January effect, which we have written about in recent weeks.

Interest rate futures

Interest rate futures have moved mostly sideways for the past seven trading days and are undergoing volatility contraction, suggesting a breakout will follow. The long-term trend remains up for the sector, but as before, upside breakouts, as well as trend-defining support, are within range. Both levels happen to coincide with the right shoulder of a potential head and shoulders top, so the break of the neckline would be a downside breakout and change of trend to down. A break above the right shoulder would be a failure pattern and a resumption of the uptrend.

This sector could break either way over the coming weeks, and the resultant moves could be sizeable.