Weekly Update – 3 May 2020 – LS Trader

Stocks

The S&P continued to rally higher, slightly exceeding the 61.8% retracement of the prior decline until Thursday before turning lower. Friday gapped lower and closed lower again. It is possible that will be the end of the corrective rally and that prices may resume the downtrend.

The Nasdaq 100 had been stronger still, testing the 78.6% retracement of the prior decline. As we have mentioned several times over the years, when the 78.6% retracement level is exceeded, the market will often go on to at least test the prior high. However, the current global backdrop and the price action seen on Thursday and Friday continue to keep that view as a low probability in this case.

Commodities

Commodities continue to consolidate and digest the recent moves. The energy markets are trying to scrape themselves off the bottom but remain in long-term downtrends, as they will for the foreseeable future.

Metals have seen continued weakness. Gold has traded lower but for now, is holding above support.

Currencies

The Dollar has seen continued weakness this past week, and we remain flat all currencies. A few majors are within range of breakouts.

Interest rate futures

From last week: “Interest rate futures continue to trade in the vicinity of the neckline and could yet break to new highs. The trend remains up across the sector.”

Interest rate futures have failed to move higher and break the neckline, as volatility continues to contract. This is a choppy consolidation that could still resolve either way, with a slight upward bias in the direction of the primary trend.

Weekly Update – 26 April 2020 – LS Trader

Stocks

From last week on the Nasdaq 100: “Friday’s bar turned lower, and that may be the end of the rally.” Stocks opened the week lower but did regain some of the declines with a strong day on Friday, but still closed down for the week.

Commodities

The energy markets had the wildest of weeks with May Crude Oil declining to -$40.32 before recovering. However, although weakness was also seen in June, which made a low print of $6.50, it never made the extreme move that May did. It is normal to roll out of the expiring contract around a week before expiry, and those that stayed in May got caught out. Therefore, the price action in June is more important as it was the liquid contract at the time. Nonetheless, one would never think that such prices levels would be seen in Crude. Whether we have a similar situation when June expires next month remains to be seen.

The trend remains down in the Crude markets. Still, there is very little value in a short position due to the extreme volatility; the required position sizing makes it all but impossible to structure a short trade with asymmetric risk-reward from current levels.

Gold dipped on Tuesday but recovered and rallied back towards the recent highs, keeping the uptrend intact.

Currencies

The dollar remains in the middle of the recent range but is still in an uptrend against the majors. We are currently flat all currency markets, which is a situation that does not arise that often.

Interest rate futures

From last week: “There are arguable head and shoulders continuation patterns forming on the 30 Year T-Bond and 10 Year T-Notes. A break of the neckline would suggest new highs and possibly negative interest rates in the US.”

Interest rate futures continue to trade in the vicinity of the neckline and could yet break to new highs. The trend remains up across the sector.

Weekly Update – 19 April 2020 – LS Trader

Stocks

From last week: “Markets could continue to rally further, and the adage of don’t fight the Fed is often prudent.” Stocks continued their recent corrective rally. Strength has been impressive, certainly in the Nasdaq 100, which has easily exceeded the 61.8% retracement level from the all-time high, falling just short of the 78.6% retracement level.

Friday’s bar turned lower, and that may be the end of the rally. However, history tells us that when 78.6% retracement levels are exceeded, markets tend to complete the retracement and go on to make new highs. That would have seemed inconceivable a few weeks ago, and it still seems unlikely, but possible.

Commodities

Gold reached new seven-year highs on Tuesday but ended the week lower. The long-term trend remains up. Silver continues to correct, and the correlation between silver and several other markets, including the commodity-based currencies, is evident. If stocks do resume the downtrend, other correlated instruments will follow.

Currencies

The dollar remains in the middle of the recent range but is still in an uptrend against the majors. As above, the commodity-based currencies remain weak, and a resumption of the downtrend is within range.

Interest rate futures

From last week: “There are arguable head and shoulders continuation patterns forming on the 30 Year T-Bond and 10 Year T-Notes. A break of the neckline would suggest new highs and possibly negative interest rates in the US.”

Interest rate futures tested the neckline but have so far been unable to break above resistance. The trend remains up for the sector, which the 5-year T-Notes and 3 Month Eurodollars remain strong.

Weekly Update – 12 April 2020 – LS Trader

Monday is a Bank Holiday in the UK, but US markets will be open as normal.

Volatility continues to undergo compression in most markets as it declines from the recent peak, which shows that markets are correcting against the primary trend. We can expect the resumption of most trends over the coming weeks.

Stocks

Stocks have retraced to the 50% range and have met the minimum requirements for a retracement. Indices could turn down as early as this week. However, markets are now back within the middle of the range and with the Fed throwing the kitchen sink at them, confirmation that the downtrend has resumed is required. Markets could continue to rally further, and the old adage of don’t fight the Fed is often prudent.

Commodities

Gold made an explosive move to the upside, taking out the prior highs as expected, and reaching its highest level in over seven years. Silver also rallied, bringing an end to a profitable downtrend.

Commodities overall have seen mixed trading with strength in some markets and weakness in others.

Currencies

The dollar moved lower this week against the majors, and the Dollar Index ended the week lower, back in the middle of the current range.

Interest rate futures

The trend remains up for interest rate futures, with the shorter-term markets still holidng above support. There are arguable head and shoulders continuation patterns forming on the 30 Year T-Bond and 10 Year T-Notes. A break of the neckline would suggest new highs and possibly negative interest rates in the US.

Weekly Update – 4 April 2020 – LS Trader

Volatility has been at unprecedented levels in many markets in recent weeks. Volatility remains high in most markets but is undergoing compression in most markets as it declines from the recent peak. This suggests that markets that are undergoing volatility compression are correcting against the primary trend. Therefore, we can expect the resumption of most trends over the coming weeks.

Stocks 

Stocks continue to find resistance around the 38.2% retracement level of the decline from the all-time high. The rally from the lows last month are counter-trend and corrective, but the corrections may not be completed yet. The trend structure appears to be incomplete to the downside, so new lows, perhaps to much lower levels, remain a possibility.

Commodities

From last week “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 energy markets continued their rally from the prior week, with massive upside moves being seen on Thursday and Friday. We exited two more highly profitable short trades on Brent and Light Crude. The long-term trend remain down but it’s looking increasingly probable that the lows are in for the foreseeable future.

Currencies

The Dollar Index found support at the prior week’s lows and rallied for most of the week, keeping the dollar uptrend intact. In spite of the weakness seen during the preceding week, the dollar remains strong against the majors and is in current uptrends against the Canadian Dollar and the British Pound.

Interest rate futures

Interest rate futures remain in long-term uptrends, with the shorter-term markets remaining stronger than the 30 Year T-Bond. The trend remains up across the sector, and we may yet see new highs.

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.