Weekly Update 29th December 2013 – LS Trader

Stocks advanced again, in line with the so-called Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January. Should this rally continue in line with the historical tendency, stocks may rally through to the end of the coming week. Regardless of whether stocks do continue to rally, the trend remains up across the board of stock indices and will do so quite well in to 2014 regardless of what happens. It will take a decent sell-off to change the trend to down in any of the indices we trade at LS Trader.

Stocks

As written above, stocks continued higher in line with historical seasonal tendencies, which led to all 4 indices that we trade at LS Trader advancing to new highs for the year. In the case of the Dax and the S&P 500, these new highs are all time highs. As far as the technical and long-term trend analysis is concerned these rallies could yet continue into 2014. The first full trading week of January as traders come back to their desks and trading volumes pick up will give a clearer picture.

Commodities

Further strength was seen in the energy markets, with Light crude managing to reach and clear the $100 level. The RSI broke above the 50-60 bear market resistance range so there may be further to run for this market, but the longer-term trend is still down. Light crude and no leaded gasoline are both still the weakest markets of the energy sector, but both are moving higher in the short-term. No leaded gas has a chance of a change of trend to up this week should strength continue.

Gold and silver both ended the week higher, as did the entire metals sector, but the trend is still very much down for these 2 metals. The RSI remains in bear market territory for gold and has still been unable to move above 50 on any advances. Silver remains slightly stronger than gold and is still above its recent lows, which may be tested this week. The 50-60 range on the RSI may also provide resistance should support hold and the market attempt any rally.

As 2013 comes to an end, the long-term trends are still mostly down for commodities but there have been some signs of life in some of them. At a minimum we should see some large bear market rallies in 2014 in several commodity markets, some of which may extend to new bull markets.

Currencies

The currency markets saw an increased level of volatility this week with some large daily moves on Friday in the dollar index, USD/CHF, EUR/USD and GBP/USD. With the exception of the dollar index this was following moves to new highs for the current move in the case of cable and the Euro, and a new low for USD/CHF. These moves were likely due to light trading volume during the holiday period, but even so on a very short-term basis are quite strong reversals. The longer-term trends though in each of these markets are still unaffected and remain as before. As with stocks, a clearer picture will emerge once traders return to their desks in 2014.

The dollar rose to new highs for the year against the Yen once more, registering new 5+ year highs in the process, as the Nikkei 225, the Japanese stock index, also hit new highs for the year. Strength in the Nikkei correlates to a weak yen, so as the Nikkei rises the yen falls.

Interest rate futures

The 30-year T bond was the subject of a huge spike higher on the 23rd December, a move that was a fat finger spike and was subsequently mostly corrected by the exchange. The actual move higher on that day was still sufficient to break above short-term resistance. The market has since been moving back towards the recent lows and may break lower again soon. The September low remains a critical support level for the long bond, and should the market eventually break below this level there is plenty of room for further price declines. The interest rate futures markets will be one of the markets to watch in 2014 as there is potential for some huge moves.

Good trading

Phil Seaton

Weekly Update 22 December 2013 – LS Trader

The S&P 500 reached a new all time high on Friday, the Nasdaq 100 a new high for the current move and the Dax is within touching distance of new all time highs. In addition, Monday is historically the first day of the Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January. Any sort of rally will see the Dax hit new all time highs and a larger rally may see the Nikkei advance to new highs for the year

Stocks

The S&P 500 found support on the RSI at 45 (in bull markets the RSI often finds support between 40 & 50). The market bounced nicely off the 50 day moving average twice this week and may yet be set for higher prices.

The shelf of support around the 9000 level that we wrote about last week on the Dax held firm, as did the RSI, which also held support in the 40-50 range. This price action and support shelf did prove critical as expected, and a rally followed, taking the market to within range of new all time highs, which may be seen next week. The weekly advance was 4.3% and the weekly chart looks much more bullish than the daily, where the advance occurred with smaller and smaller real bodies (the body is formed by the distance between the open and close, and excludes the high and low of the day), which indicates some loss of momentum at daily chart level. Nonetheless, the strong seasonal period may be sufficient for a new breakout.

Commodities

The energy sector has had a bullish week with Brent crude advancing 3.19% having found support just below 108. Light crude was not quite as strong but still had a good week and may yet test $100. This week saw Light crude close above the 200 week moving average and the RSI move above bear market resistance, reaching 61.7. The market’s reaction at the psychological $100 level will likely be a factor in determining short-term price action. No leaded gas was the strongest market in the sector, advancing by 5.85% for the week. Natural gas and heating oil also rose.

Gold broke though near term support and almost reached the June low basis the continuous contract, a level that may be tested this week. The RSI remains in bear market territory, so far unable to break above 50 on any advances. Silver remains slightly stronger than gold and is still above its recent lows.

Currencies

The dollar index fell to its lowest level since late October but had a large indecision day on Wednesday, ending the week back above both the 80 level and the 50-day moving average. Key resistance looks as though it may be tested this week. The 79.06 support level looks as though it will hold for now based on the Euro’s rapid retreat from major resistance. A break above 60 on the RSI for the dollar index would suggest higher levels will be seen near term. The Euro is as ever, almost a perfect mirror image of the dollar index

The dollar rose to new highs for the year against the Yen, and indeed its highest level since 2008, closing above key resistance at the end of the week. The dollar should continue to benefit against the Yen if the Nikkei continues to rise based on the intermarket relationship between the two, where the Yen is inversely correlated to the Nikkei

Interest rate futures

The 30-year T bond was the strongest amongst interest rate futures, managing a small advance for the week. The 5 & 10-year T notes ended lower, as did the 3 month markets. The long-term trend for the sector is still down on balance.

Good trading

Phil Seaton

Weekly Update 15th December 2013 – LS Trader

We’re approaching the time of year where traders look for a Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January, although most seem to consider it for all of December. As of now the major stock indices are down for the month.

Considering the extent of the prior rally and bullish sentiment, which has reached extreme levels, it’s quite possible that there will be no Santa rally this year, something that does not bode well for stocks in 2014 as historically bear markets follow years in which the Santa rally has failed to materialize. More importantly though than this popular seasonal indicator is the proximity to support that stock indices find themselves at, discussed in more detail below.

The focus for many this week though will be the 2 day FOMC meeting, and the seemingly endless debate about whether the FED will begin tapering its Bond purchases from this meeting or further out next year. Stocks will be looking for a delay in tapering, which if that happens may lead to a rally.

Stocks

From last week on the S&P 500 “It is noticeable that the past two weeks’ gains have been extremely minimal so the rally is quite possibly tiring. There are also some momentum divergences; so how much upside the current run has remains to be seen.” As expected the S&P did continue with weakness sufficient to end the trend but has as yet not fallen too far, so a return back to new all time highs can as yet not be ruled out. RSI remains in the bull market support zone, as does the Dax discussed below, so the week ahead may be key to stock market direction, not just from the Fed decision and subsequent market reaction, but also from a technical perspective.

The Dax has fallen to a shelf of support around the 9000 level, which will likely be tested this week. Should there be weakness in other stock markets this level may well be broken with plenty of room for a decline below this support shelf. Last week we wrote that the RSI was still in the bull market support range of 40-50. This week it fell to 40.9. A break below 40 on the RSI will give further weight to a continued decline for the Dax. In summary the price action seen early next week will very likely be critical for this market.

As trend followers we are only interested in price action and not on news events and debates about what the Fed may or may not do, or trying to predict the markets’ subsequent reaction. Price action is king and the rest is commentary.

Commodities

Crude oil appears to have run out of steam as expected with RSI remaining in the 50/60 bear market resistance range, which continues to suggest that $100 will not be seen yet. The trend is still down for crude.

Metals initially spiked higher this week but were unable to continue higher and have since turned lower once more, possibly heading once more to breakdowns to new lows. The lows of the year in both gold and silver are still in range and if they are not reached this year, will likely be in 2014.

Currencies

The dollar index fell below 80 for the first time since late October mid-week but pushed back above 80 come Friday’s close. The trend is clearly down but as we wrote last week, whether we see a move lower to test the year’s low at 7906 will largely be dependent on EUR/USD and specifically whether it can get back to the late October high.

The dollar finally reached and slightly exceeded our target against the Yen, to reach its highest level since 2008. However there is a momentum/price divergence and also a doji printed on the weekly charts, so we may see the market take a pause at this level before resuming the rally further out. A close above last week’s high would be bullish.

Interest rate futures

Interest rate futures continue to drift sideways overall, presumably looking to take their cue from the FED meeting this week. Increased volatility can be expected in this sector during the coming week, but the trend remains down for the longer-term markets in the sector, but still up for the 5 year T note and 3 month Eurodollar and Euribor.

Good trading

Phil Seaton

Weekly Update 9th December 2013 – LS Trader

Stocks made slight new highs this week in the case of the Nasdaq 100, but the other indices lagged behind. The dollar has seen overall weakness with the dollar index falling to new lows for the current move, and commodities have been a mixed bag. There have been a couple of changes of long-term trends this week but overall the trends by sector remain as they have been for quite some time, namely up for stocks and down for everything else.

Stocks

The S&P 500 made a small advance for the week, ending higher by a single point courtesy of a decent recovery on Friday. It is noticeable that the past two weeks’ gains have been extremely minimal so the rally is quite possibly tiring. There are also some momentum divergences; so how much upside the current run has remains to be seen.

Once again it was the Nasdaq 100 that led the way, reaching new highs for the current move and still looking as though it has legs for further gains.

The Nikkei had a heavy 3-day sell-off mid-week but made a very strong move higher on Friday, printing a large bullish engulfing pattern to keep the uptrend intact.  The correlation between the Nikkei and USD/JPY remains extremely high, with the 3-day sell-off and subsequent recovery evident in both markets. If USD/JPY is to reach new highs for the year as we expect, further gains should be seen in the Nikkei.

The Dax was by far the weakest of the 4 indices we trade at LS Trader, printing a bearish engulfing pattern on the weekly chart and bringing the trend to an end, at least for the time being. Support may have been found at last week’s lows, with the RSI also remaining in the 40/50 bull market support range. New highs can as yet not be ruled out.

Commodities

Commodities have for the most part been in a long-term downtrend since 2011, baring a handful of exceptions. There are some signs though that strength is returning to some markets in the sector, and there is clearly plenty of potential upside. Much of the direction for commodities over the coming months will be how the dollar fares and whether markets stay in the current mode of “risk on”, or whether we see stocks begin to decline and a return to favour of “risk off” markets. It is interesting to note that the recent spell of ‘risk on” and dollar weakness has not benefitted commodities as many would expect, so there is underlying weakness for commodity markets

Crude oil made a sharp reversal this week but the trend remains down. The RSI has risen but has remained in the 50/60 bear market resistance range, suggesting that there may not be enough momentum to keep the black stuff heading higher towards $100. That of course remains to be seen as there is strength elsewhere in the sector with Brent crude leading the way higher following a 1.78% gain for the week. Natural gas completed a change of trend to up, so the trend for the sector is currently up overall.

Grains markets have remained mixed but a few of these markets look set to resume their respective downtrends. Rough rice, which has been consolidating in a tight range since late 2011, made a double close key reversal on the weekly charts and may finally break lower this week.

Currencies

The dollar index printed new lows for the current move and may yet head lower to test the year’s low at 7906, but dollar weakness is far from universal, meaning that further dollar index weakness will be reliant on continued strength in EUR/USD.

The dollar has however continued to gain against the Yen and the Canadian dollar, reaching its highest level against the latter since November 2011 basis the back-adjusted futures contract. The dollar also remains on target to reach our long-standing target of 10371 against the Yen, and go on to post new highs for the year.

Interest rate futures

Interest rate futures were lower across the board, in line with the long-term trend. Currently only the shorter-term markets remain in uptrends, with weakness being led by the long bond and the 10-year T note. The weekly charts point to lower prices in the longer-term timeframe, but the daily charts printed some indecision patterns on Friday, so short-term direction will be confirmed by this week’s price action.

Good trading

Phil Seaton

 

Weekly Update 1st December 2013 – LS Trader

Stocks rose to new all time highs this week in what was a shortened trading week due to the U.S. Thanksgiving Holiday. The dollar has been mixed, showing weakness overall but managing to gain against the Yen, Canadian and Australian dollars. The long-term trends remain intact for the 4 sectors that we trade and are still up for stocks, down for the dollar, commodities and bonds.

Stocks

The Nasdaq 100 advanced 1.97% for the week and was the more bullish of the 2 U.S. stock indices we trade at LS Trader. The tech index now stands at its highest level since November 2000. The current rally that began nearly 5 years ago back in March 2009 has already retraced more than 50% of the 2000 bear market collapse and may head higher to retrace 61.8% of that decline at some stage in 2014, that level is at 3723 basis the back adjusted continuous contract, still some 236 points above Friday’s close.

Two of the other indexes we trade, the S&P 500 and the Dax are already at all time highs with the latter making the biggest move, a 2.09% weekly advance. Both indices posted new all time highs but the S&P500’s was marginal, only 0.15% up for the week.

The Nikkei continues to edge higher towards the May 22nd high, this week reaching its highest level since that high. A break above the May 22nd high would be bullish and would be the highest level printed by the index since December 2007. On the basis of intermarket relationships where a strong Nikkei equals a weak Yen, further Nikkei strength would point to continued yen weakness, and vice versa.

Commodities

Crude oil broke below key support this week, confirming a change of trend to down. Crude may continue to head lower to around the 85 handle over the coming weeks. The trend is mixed in the energy sector.

Another market that has completed a trend change this week is oats. Oats is part of a resurgent grains sector that has been heavily sold for much of the past year, but has rallied quite strongly in recent weeks, sufficient to change the trend to up.

From the grains sector the trend is also up for soybeans and soybean meal, both of which have resumed their respective trends this week and look poised to continue higher to test their highs of the year, posted back in September. The third market in the soybean complex is soybean oil. Historically these 3 markets are fairly well correlated but for the past couple of years that relationship has been broken with oil in an established downtrend.

Bean oil looks as though it may break lower once again soon. One thing of note is that the RSI has been unable to clear the 50/60 level since February. In downtrends the RSI usually finds resistance between 50 & 60 and this has been true for bean oil. Each time a correction higher has been seen, the RSI has stalled below the 60 level and the market has moved lower again. On that basis resistance should continue to be found around the 42 handle and the market then press lower again.

Currencies

The 8158 high on the dollar index remains the key level for upside strength and for the time being at least it looks as though that level will hold.  The index remains week, as does the dollar on balance, and the index may be poised to move lower once more, heading back towards the low of the year. The invert of this move will of course be a higher Euro, which may move higher to test the 13834 level soon. The dollar has however gained against the Australian dollar, Japanese Yen and Canadian dollar.

Interest rate futures

Interest rate futures were marginally higher this week but the trend remains down with the exception of the shorter-term interest rate futures.  The past week’s action has been mostly sideways, as has the action since the beginning of October. The 10 Year T-note did rise mid week to test the 200 day moving average but was unable to clear it. Another attempt at that may be seen this week.

Good trading

Phil Seaton

Weekly Update 24th November 2013 – LS Trader

Stocks have continued their slow and steady climb higher to post new all time highs yet again. The dollar has been mixed but remains weak overall. Commodities have seen some increased volatility with weakness seen in the metals but some strength returning in other markets.

Stocks

In last week’s update we wrote about the key round number levels that were in play in the stock indices. The Dow and the S&P 500 both moved above these round number resistance levels, although only just on the S&P 500, which did not move above 1800 until Friday. Of bullish significance is that fact that the index closed above this level on Friday. A strong weekly close often implies continued strength the following week so we may yet see further strength for stocks.

The Dax also posted a new all time high this week, but that was on Monday. The index spent the rest of the week moving sideways but this culminated and a new high weekly close.

The Nikkei also moved higher and the focus remains as before on further strength towards the May 22nd high of the year, which is still some 700 points above Friday’s close.

Commodities

In last week’s update we wrote “When markets don’t react to what is apparently bullish news, it suggests hidden selling pressure is present in the markets.” That hidden selling pressure became evident this week with gold and palladium breaking out to the downside. The target for gold remains at the low of the year posted on the 28th June at 1182 basis the December contract. Silver continued lower below the shelf of support that has held the market up for a couple of months and may now continue lower towards the low of the year.

Currencies

The dollar index closed lower for the week but the index has moved in a fairly narrow range for the past 2 weeks, suggesting that an eventual breakout from the range may lead to a meaningful move. For now the long-term trend is down with resistance in place at 8158 basis the December contract. If 8158 can be exceeded, dollar strength may get underway and the index may press higher towards 8300.

However, much of what happens in the dollar index will be dependent on what happens in the Euro as the index being made up of 57% Euro is almost a perfect inversion of EUR/USD. If the Euro can hold to its current uptrend and work its way back towards the high of the year at 13834, the dollar index will remain under pressure and fall back towards its low of the year.

The big move in the currency markets came from a sharp 3-day sell-off in AUD/USD. The weakness seen since the 23rd October high suggests that may have been a significant high for the time being and that new lows may be seen in the coming weeks.

The inter-market relationship between a strong Nikkei and a weak Yen continues to play out with both markets moving in line with expectations. Nikkei strength is a contributing factor to Yen weakness and this week saw the dollar push above one of our key targets against the Yen and we still remain on track for a continuation higher towards the high of the year (dollar strength/yen weakness) in the coming weeks. As we’ve mentioned many times before, USD/JPY generally moves independently to other major currencies, so dollar weakness elsewhere usually has little impact on dollar/yen.

Interest rate futures

With the exception of the shorter-term interest rate futures, the long-term trend remains down. The long bond fell to its lowest level since 18th September on Thursday before bouncing higher. The trend though is clearly down with the market below the 50-day SMA, which in turn is below the 200 day SMA. The long bond has by far been the weakest of the sector and the only market in the sector that has a current trade active.

Good trading

Phil Seaton

Weekly Update 17th November 2013 – LS Trader

Stocks have continued their recent advance, once again posting new all time highs, whilst the dollar has fallen against all but one of the majors. Interest rate futures have also risen but commodities have remained mixed. The long-term trends are up for stocks, mostly down for the dollar, mixed for interest rate futures and down for commodities.

Stocks

In last week’s update we wrote that it was premature to call a top in place for stocks and price action confirmed that view this week. The S&P 500 rose to new all time highs once again, advancing by 1.56% for the week and coming within 4 points of the 1800 level.

The Dow 30 is also closing in on the key 16000 area, another round number target, as is the Nasdaq Composite (not the 100), which is closing in on the 4000 level. Round numbers often provide psychological resistance and it is of interest that these 3 U.S. indices are all approaching them at the same time. Current momentum suggests that these levels will be cleared and that will likely be bullish, especially if all 3 indices close above round number figures, which would suggest further upside over the coming week’s possibly extending to year-end and the fabled Santa Claus rally.

From last week on the Nasdaq 100: “the index found support at the 50-40 handle on the RSI, an area that often provides support in up trending markets, so even though price support levels were broken, there may yet be another push higher to new highs for the year.” The Nasdaq did indeed continue higher and reach new highs for the year as expected, and there may yet be further upside. The key will be how the S&P 500 handles 1800.

The Dax missed out on new all time highs by 5.5 points and the price action here is far less convincing than in other indices. It is likely that due to the proximity to the high that resistance here will be tested once more.

The biggest move came from the Nikkei, which put in an extremely bullish week, advancing by some 7.43% and clearing key resistance. There is now only fresh air between last week’s high and the high of the year at 16240 basis the December contract.

Commodities

Metals all pushed lower this week with silver and copper breaking out to the downside. Gold also came close to breaking lower this week but just about held on. Of interest to the metals sector was the Yellen testimony (the next Fed Chair and a huge fan of further QE), which would by many be viewed as inflationary, suggesting higher metals prices. When markets don’t react to what is apparently bullish news, it suggests hidden selling pressure is present in the markets.

Although both gold and silver did creep higher from their respective lows of the week the moves were far from convincing under the circumstances. If metals don’t rally in the presence of bullish news, what will push them higher? For now the trend remains down across the sector and a break lower, especially if gold and silver fall below last week’s lows, may follow.

Currencies

The dollar index fell for the week and the downtrend remains intact. The dollar was in fact lower against all of the majors with the exception of the Yen. We have written many times previously that dollar/yen tends to move independently of other currency markets and that continues to be the case.

The correlation between the dollar/yen and the Nikkei is high, so with the Nikkei making a convincing move to the upside, USD/JPY may follow and new highs for the year may be seen before year-end, should a couple of key resistance levels be cleared in the next week or so.

Interest rate futures

Higher prices have been seen across the board in the interest rate futures sector but the long-term trend is still mostly down. The rally from the September lows has been sufficient only to change the trend to up for the 5 year T-note, but the move to the upside has yet to be confirmed. The longer-term markets in the sector are still lagging behind, where the trend remains down.

Good trading

Phil Seaton

Weekly Update 10th November 2013 – LS Trader

With the exception of the Dax, stock indices failed to make new all time highs and the dollar rallied. The week will however be remembered for the ECB rate cut that surprised the markets and the near unprecedented 2 minute period of volatility seen in the interest rate futures markets on Friday. The long-term trends are still mostly intact, up for stocks, mostly down for the dollar, down for interest rate futures and down for commodities.

Stocks

Following Thursday’s decline seen in U.S. stock indices, a move that was mostly retraced on Friday, it is premature to say that a top is in place for stocks. Indeed Friday’s recovery was sufficient to bring the S&P 500 back to within touching distance of new all time highs. Should these highs be taken out then the focus will return to the 1800 level on the S&P 500 and also the 16000 level on the Dow. Although the Dow 30 is not a market we trade at LS Trader due to it having historically low trending characteristics, it is nonetheless an important index and one that is heavily followed.

The Nasdaq was the index that was hit the hardest but it was noticeable that the index found support at the 50-40 handle on the RSI, an area that often provides support in up trending markets, so even though price support levels were broken, there may yet be another push higher to new highs for the year.

The Dax, as mentioned above, did briefly benefit from the ECB rate cut and hit new all time highs on Thursday before giving back a large portion of those gains. Friday once again saw the index close above 9000 but whether Thursday’s move higher and then drop lower is a terminating pattern remains to be seen. A key factor in this will likely be the performance of U.S. indices and whether the S&P 500 hits new highs once more.

Commodities

Commodities in contracts to the other sectors have been relatively quiet, with most markets in the sector continuing the longer-term downtrend. Grains, metals and energies are all still in long-term downtrends with only the odd market being the exception to that.

Gold, silver and copper all headed lower this week and look as though they may fall further to test critical short-term support over the next two weeks. Should these support levels be broken, the longer-term downtrend would have resumed following the recent corrective moves higher. Of the metals sector, only palladium is showing strength and could be on the verge of a change of trend to up with a bullish breakout this week.

In the grains sector, the long-term trend is only up for soybeans and soybean meal and both markets have been bullish this week and may also both be set to resume their respective longer-term uptrends. Rice also had a bullish week, advancing some 4.18%, but the longer-term trend here is still very much down and there is considerable overhead resistance that is likely to cap gains to the upside, in spite of recent momentum.

Currencies

The Euro made its sharpest 2-week decline for the year and Thursday’s low reached the 50% retracement of the rally that began on the 9th July. Due to the extent of the move and the fact that the trend is still up, it is possible that the Euro will bounce from current levels. However, the 2-week decline from $1.3834 basis the December contract has done considerable chart damage and may ultimately lead lower to test the 200 day moving average, which currently sits at $1.3240, basis the continuous contract.

The dollar index is obviously the inverse of the Euro, being composed 57% of the Euro, so following a possible near-term pullback, a rally further to the 200 day SMA, currently at 82.13 may follow.

Overall the trend is still down for the dollar with only a couple of exceptions, namely the Canadian dollar and the Japanese Yen. Against the latter there is still plenty of upside potential, which may ultimately lead to a rally to new highs for the year.

Interest rate futures

Friday saw a near unprecedented 2 minute period of volatility in the interest rate futures sector which saw the markets initially react positively to a data release and then reverse the entire move and then some, all in the space of less than 2 minutes! With the exception of the 5 year T Note, the trend remains down for the sector and the weakest of the sector, the 30-year T bond, broke lower, resuming the long-term downtrend. Although the overall trend for the sector at the moment is mixed, ultimately yields should rise considerably, leading to a sharp fall in prices, that once underway could continue for months at least.

Good trading

Phil Seaton

Weekly Update 3rd November 2013 – LS Trader

The dollar index rallied having falling to almost 2 year lows the previous week. The dollar rally pressured commodities, most of which ended the week lower and stocks ended the week flat. The long-term trends remain intact, up for stocks, down for commodities and interest rate futures and mostly down for the dollar. Critical support/resistance levels are very near to Friday’s close on a couple of markets, in particular EUR/USD and USD/JPY so the week ahead so give a good indication to near term price action depending on the markets’ reaction to these key levels.

Stocks

The S&P 500 posted new all time highs once again, this time at 1773.25 basis the December contract, but closed slightly off the highs at 1754.75

The Nasdaq 100 also rose to new highs for the current move, briefly moving above 3400 to reach its highest level since November 2000 at 3401.75. As with the S&P 500, the Nasdaq finished the week out with a bit of weakness, ending the week lower by 0.17%

The Dax also posted new all time highs and cleared the 9000 level and closed above it. Last week we suggested a close above 9000 would be bullish and would shift the long-term focus towards 10,000 in 2014, and the index did close above 9000 on Wednesday, Thursday and Friday. The weekly close above this key level is particularly bullish. There is however bearish divergence on the RSI, which shows a loss of momentum from the prior high posted in September.

The Nikkei 225 continues to be the weakest of the 4 indices we trade at LS Trader and is still some way off its highs of the year and obviously a long way off its all time highs.

Commodities

Commodities have for the most part fallen this week which is a move consistent with the longer term downtrend that commodities have been in since 2011. Considering the weakness seen in the dollar over the past few weeks one would have perhaps expected stronger commodity prices, since commodities are for the most part priced in dollars they have a tendency to move counter to the dollar. The fact that dollar weakness did not propel commodities higher is in line with the longer term trend picture but also suggests underlying weakness. This week’s stronger dollar may have been a factor in commodity weakness.

Both the energy and the metals have been weak, as have the grains, and there are very few bullish commodities at present.

Currencies

Last week we suggested that the bearish RSI divergence in the Euro and the doji printed on the prior Friday’s daily chart may lead to the Euro pausing for a breather before the uptrend resumed. This week saw a steep sell-off on the Euro which has taken the market back to key support. There is good support around current levels for multiple reasons so if the Euro is to find support and keep the uptrend intact it should come from nearby levels. The inverse of the Euro is the dollar index, so as the Euro fell, the dollar index rallied.

We also wrote last week about the ever-tightening daily range just below key resistance that was present on the British pound, suggesting that a break out of that tight range would yield a decent move in the direction of the breakout. That breakout did come and cable broke to the downside. That was the fifth failure at similar levels over the past 2 years and highlights the importance of that level. As with the Euro, cable is also just above a key support area so the direction for the dollar, at least as far as these two major currencies are concerned should be resolved next week.

Interest rate futures

Interest rate futures ended the week lower but the 5 year T note remains the strongest, reaching the territory of a change of long-term trend to up. The 10 year T note came to within a couple of ticks of the 61.8% retracement from the May top, and the trend remains down. The trend is also down for the weakest market of the sector, the long bond. The long bond is the only market that has seen the rally fall short of the 200 day moving average, and is also below the 38.2% retracement of the decline from the May top. For now the focus remains lower but moves above the recent high would change that, at least for the immediate term.

Good trading

Phil Seaton

Weekly Update 28th October 2013 – LS Trader

The past week has seen further strength for stocks, with new all time highs being seen as well as continued weakness for the dollar overall, with the dollar index falling to almost 2 year lows. Commodities have remained mixed and interest rates have continued with recent strength.

Stocks

The S&P 500 advanced another 1.01% for the week, reaching new all time highs once again in the process. The Nasdaq 100 also rose to new highs for the current move to reach its highest level since November 2000.
The Dax rose to new all time highs again and made the biggest weekly advance of the 4 indices that we trade at LS Trader, advancing by 1.54% for the week. Basis the December contract, the Dax briefly crossed the 9000 level for the first time but closed the week just below at 8989. Whether the index can push on from here having broken a round number remains to be seen. A decisive move and close above 9000 will have traders looking for the 10,000 level in 2014, especially as the index has advanced over 500 points in just 3 weeks.

With stocks at all time highs there are no overhead resistance levels to focus on as targets so we just have to ride the trend and see how much further these markets go.

Commodities

Commodities markets remain mixed with the long-term trend being up for a handful of markets, but down for the majority. The grains markets have been particularly weak for much of this year with 5 of the 7 markets we trade at LS Trader being in long-term downtrends, the exceptions being soybeans and soybean meal. Of these soybean meal has continued its long-term uptrend this week, reaching its highest level in 6 weeks. Meal may rise further to test the year’s high at 451.20. Soybeans came close to resuming the uptrend and may do so this week. Soybean oil, by far the weakest of the soybeans complex saw 5 days of selling this week and may be poised to break lower again in the coming days.

As far as the grains are concerned, that’s the end of the bullish story as the other markets are all showing weakness. Even wheat, which has shown some strength in recent weeks, sufficient for a brief test of the 200 day moving average, resumed selling this week, keeping the downtrend intact. Corn, which has traded in a vert tight range for the past 3 weeks is close to its recent low and may yet break lower once more towards 410, the June 2012 low.

One of the most bullish commodities at present is lean hogs. Hogs this week broke above the 90 level to reach their highest level since January 2009 and may rise further over the next couple of months to the 100 level.

Currencies

The U.S. dollar declined further, falling to new lows since November 2011 once more as the Euro, which is an almost perfect invert of the dollar index rose to new highs for the year. Now that the Euro has reached new highs for the year and cleared a key resistance level in the process we can look for higher prices, with round number target at $1.40 the next obvious objective. There is though a drop in momentum, highlighted by divergence on the RSI and the doji that printed on Friday’s daily chart, so the recent rise may be about to pause for a breather before continuing higher.

The Pound is coiling up in an ever-tightening daily range just below key resistance. Patterns such as this are normally the precursor to a sharp move one way or the other. With the trend being up and resistance being so close to the current market level, the odds favour that the breakout will be to the upside. If so, a move to the January 1 high at $1.6288 basis the continuous contract is likely. This area is however a key resistance zone as rallies over the past 2 years have stalled here multiple times. If the current rally here stalls again, that would be a fifth failure and would suggest lower prices to come. However, a clear break and close above these levels would be bullish indeed and may lead to a further advance towards the May 2011 high around $1.6631.

Interest rate futures

Interest rate futures continued their recent rally, so much so that a change of trend to up is coming within range on the 5 year T notes. Further strength will be required for the 10 year notes to change trend to up. The 30 year Bond remains well off the pace but did this week reach the 38.2% retracement of the decline from May and may continue higher to test the 200 day moving average, which currently sits at 137.31.

Good trading

Phil Seaton