Weekly Update 26th January 2014 – LS Trader

Stocks sold off sharply during the last two trading days of the past week, possibly spooked ahead of this week’s 2 day FOMC meeting and the possible further withdrawal of stimulus measures. Whatever the reason, stocks broke sharply lower and took out short-term support in the process. Whilst the long-term trend is still very much up, the extent of the 2-day sell-off will raise questions as to whether the all time high posted at the end of last year will hold for the foreseeable future.

Stocks

The S&P 500 failed to clear the all time high posted on 31st December 2013. Having bumped its head against resistance from all time highs numerous times since the start of the year, with the final failure being made on Thursday, forming a double top, with the intervening low being broken on Friday. The Dow 30 lost a massive 579.45 points this week, for a 3.5% weekly decline. The Nasdaq 100 made a double close key reversal at weekly chart level, which is also bearish. Short-term indicators therefore all point to further weakness in the near term.

Historical stock market buffs will be well aware of the January stock market barometer, which states that as goes January, so goes the rest of the year. As we enter the last week of January with stocks considerably off their open for the year, the odds favour a lower close for January. This barometer has an 88.9% accuracy ratio so there could be a bear market ahead, something that is very contrary to the vast amount of popular opinion.

Commodities

Commodities have been mixed with several markets continuing to slide. Sugar fell to new 3 ½ year lows and wheat came within a quarter of a cent of new lows. The biggest move of the week came from natural gas, which shot higher by a huge 19.37%. This move took out a couple of key resistance levels to reach its highest level since late 2011. The 200 week moving average, which is a very long-term indicator is not far above last week’s high and that represents a likely target for this week. Natural gas has been below this level since 2008 where it made a brief move above that average that lasted only a week. To see some continuous trade above that average one has to go back to 2005, such is the extent of the long-term decline.

Currencies

In a normal market stock indexes and the dollar are inversely correlated, so a decline in stocks is generally met with a rise in the dollar. This has not been seen this week. The long-term trend basis the dollar index is still down and remains below the key 8200 level. Weakness in the dollar suggests that the markets believe that stimulus and low rates may be with us for longer than was previously expected. The index now sits almost exactly in the middle of the recent range.

The dollar did not decline across the board though, and did advance against the riskier commodity based currencies, but fell against the safe haven Swiss franc and Japanese yen. This is very much in line with a move towards risk-off

Interest rate futures

The long-term trend is still down for the 10-year T note and the 30 year T bond but that could change if stocks continue with their sell-off from last week, which would lead to further rises in the long bond. A change of trend to up is within range should strength continue. The rise for the 30-year bond from the start of the year is a move towards risk off, and it is of interest that it occurred ahead of this past week’s stock sell-off. The shorter-term interest rate markets all still remain in a long-term uptrend and may be joined by the 10-year note and long bond soon.

Good trading

Phil Seaton

Weekly Update 19 January 2014 – LS Trader

The past week saw stocks break lower early in the week but then saw a subsequent recovery. The Nasdaq 100 rose to a new high for the current move but the S&P 500 narrowly failed to make a new all time high. Both indices ended the week higher. The dollar also ended the week higher with gains across the board. The long-term trends in each of the sectors remain unchanged.

The week ahead is a shortened trading week due to the U.S. holiday for Martin Luther Kind Jr. Day on Monday, which sees U.S. markets closed to observe the holiday.

Stocks

The S&P 500 fell just shy of making new all time highs but still remains close to its highs and may yet breakout. As has been the case for much of the advance from the October lows, once a breakout to new highs occurs, there is no overhead resistance so there is always the possibility of the rally continuing further. Currently a breakout to new highs may open the door to further strength towards 1900.

The Nasdaq 100 dropped below 3500 for the first time since before Christmas, but then put in a powerful reversal that began with a large bullish engulfing pattern. The strength of this move had sufficient momentum behind it to take the market to new multi-year highs, before a small pullback into Friday’s close. What happens next will likely be dependent on whether the S&P 500 breaks out to new highs or fails at current levels.

The Dax has been the strongest of the 4 indices we trade at LS Trader recently, with the trend remaining intact from our entry last year. This week saw the Dax post new all time highs at 9799 basis the March contract.

The Nikkei did not fall as far as 15,000 but having fallen to 15,390 on Tuesday put in a strong reversal day and regained the 50 day moving average in the process. With correlation still running high between the Nikkei and USD/JPY, both markets may yet break to new highs.

Commodities

Cotton made a large bullish move, advancing 5.10% for the week and moving higher towards a change of trend to up. The trend has been down for cotton since October last year. This week’s move saw this soft commodity move above the 200 day moving average as well and may be poised for further advances.

Many commodities still remain in long-term downtrends, none more so than sugar and wheat. Sugar has continued to collapse since failing to move above 20 back in October last year. This week saw sugar decline for a 12th week in the last 13, and end the week lower by 2.25% to fall to 3 ½ year lows. There is plenty of room for lower prices ahead, with support a long way below current levels. Wheat has dropped for 7 straight weeks and is also at multi-year lows.

Currencies

The dollar has advanced against all the currency markets we trade at LS Trader, and was extremely active against the Aussie, where a failed upside breakout was followed by a break to new lows and a change of trend to down. The dollar is strongest still against the Canadian dollar and reached our 110 target this week before closing slightly lower.

The Euro fell through some additional short-term support levels and is now firmly below the 50 day moving average. Further weakness will be required for a change of trend to down, but such a move is now coming into range, as is the 200-day moving average, which is a realistic target at 13345.

The dollar index, which is an almost perfect inverse of the Euro, reached its highest level in 9 weeks. Further strength will be required for a change of trend to up but such a move does look as though it may be on the horizon. Both the 200 and 50 week moving averages are currently just above the 8200 level, which is a good target and possibly a resistance area.

Interest rate futures

It’s been a relatively quite week for interest rate futures, which have mostly gone sideways for the week. The long-term trend is still up for the 5 year notes and short-term interest futures, but remains down for the long bond and the 10-year T note.

Good trading

Phil Seaton

Weekly Update 13th January 2014 – LS Trader

The first full trading week of 2014 is over and it’s been a week that has seen stocks recover some of the losses from the prior week and the dollar move lower. Interest rate futures were sharply higher and commodities have seen mixed price action. The long-term trends for each of the sectors remain intact with the position at the start of the year being up for stocks, down to mixed for commodities and bonds, and mixed to down for the dollar. Going on the basis of the dollar index, which is a basket of currencies against the dollar but is heavily weighted towards the Euro, the trend for the dollar is in fact down.

Stocks

The S&P 500 began the week with some weakness, but not sufficient weakness to break support, so the long-term uptrend remains in effect. The remaining 4 trading days of the week saw a steady climb back towards the all time high posted on the 31st December 2013 at 1846.5 basis the March S&P 500 e-mini contract. New all time highs look likely based more on the proximity of the market to the highs rather than the price action, which shows a series of small real bodies on the daily charts and not strong candles.

The Nikkei has been the weakest of the 4 stick indices we trade at LS Trader and may yet head lower towards the low 15,000 level. However, the long-term trend remains intact and it should only be a matter of weeks before we see the recent highs exceeded.

Commodities

Commodity markets have seen an increase in volatility this week and some larger moves have been seen compared to recent weeks. For quite a long period of time, many commodities have been in consolidating patterns, especially when viewed on a weekly chart spanning around the last 5 years. Many of these patterns are wedge types and contracting triangle shapes that have had an ever-decreasing range. This has led to a drop in volatility and mostly trendless, directionless trading that keeps traversing from the upper to the lower boundary of the range.

This is one of the key reasons as to why trends have been lacking over the past couple of years in many commodity markets. Formations such as these do come to an end and are likely to do so this year, with the resultant breakouts likely to lead to some substantial moves in the direction of the breakout that could lead to moves that have the potential to run for a few years. When these breakouts do come, they will bring plenty of excellent opportunities for taking large profits out of the commodity markets.

Currencies

With the exception of against the Canadian dollar, the U.S. dollar has been lower this week against all the majors. The dollar did rise sharply against the Canadian dollar, reaching its highest level on the basis of continuous futures contracts since Q3 2010. It has often been the case in the past that the Canadian dollar has made a key move ahead of other currencies, so if that turns out to be the case again this time we could be due a period of U.S. dollar strength. Such a move is not confirmed by other currencies, in particular the other commodity based currencies of New Zealand and Australia, both of which could break out of their respective ranges to the upside in the coming days.

The dollar index ended lower, closing right on the 50 day moving average, but still remains below the 200 day moving average. The trend is still down.

Interest rate futures

Interest rate futures had a bullish week with Friday being particularly strong as the non-farm payroll figure came in lower than analysts expected. These markets shot higher on Friday and the moves resulting in some bullish reversal patterns being printed on both the daily and weekly charts. The long-term trend remains down for the long bond and the 10-year T note, but is still up for the 5 year notes and short-term interest futures.

Good trading

Phil Seaton

Weekly Update 5th January 2014 – LS Trader

The Santa Claus rally came off the rails in the first 2 trading days of the New Year, which left only the Dow 30 making a reasonable gain for the period from the U.S. stock markets. The S&P 500 managed a very small 0.2% advance, and the Nasdaq 100 was lower for the period.

Having had an inconclusive Santa Claus rally, seasonality followers’ focus will now shift to what is known as the January Barometer, which states that as go the first 5 trading days of the year, so goes the rest of the year. With the first 2 days being sharply lower, the markets have through to Wednesday to correct that loss and register a gain for the period. This indicator does have a reasonable pedigree for seasonal indicators, with an accuracy of 88.9% since 1950. More importantly than the seasonal tendencies is the long-term trend, which is clearly up in all 4 indices that we trade at LS Trader.

Stocks

The S&P 500 rose to new all time highs on the last day of 2013 but sold off in the first 2 trading days of the year. Should this weakness continue next week, further selling may follow to take the market back towards medium-term support at 1754.

The Nikkei also rose to new highs for the current move this past week, but also saw weakness during the first 2 trading days of the New Year. The Nikkei though did put in quite a decent bullish reversal on Friday having been significantly lower earlier in the day. If this rally is good, last week’s low should hold.

Next week, which is the first full trading week of the year, should give a clearer picture of market direction as traders come back to their desks and trading volumes pick up. Volumes have been light during the holiday period, which has contributed to the volatility.

Commodities

Crude oil sold off sharply having been unable to press clearly above the $100 level. The long-term trend remains down for this market and me may see further weakness during the coming weeks, in the direction of the long-term trend. Other energy markets were also weak and may follow crude lower. Brent crude, which has been stronger than light crude for the past several months also broke lower and may head lower towards the 200 day moving average, currently at 104.46.

Silver and gold both had highly volatile weeks following weakness on the 31st December, which was sharply reversed by the close of trade that day. Both markets are now in the 50-60 range on the RSI, which often provides resistance for bear markets. Short-term momentum however points to higher prices near-term although the long-term trend for both is likely to remain down for quite some time yet

Currencies

The currency markets have seen quite a considerable increase in volatility during the past couple of weeks. This year has begun with dollar strength in most markets. The long-term trend for the currency markets remains mixed, with the trend being up for some and down for others. This was the picture for much of 2013 and was a major contributing factor for choppy markets in the commodity markets as well as the currency markets. The best moves and biggest trends come when there is a clearly defined trend for the dollar, with the dollar either in an up or down trend against all of the majors at the same time. This position will likely clarify in 2014 and will result in some extended trends in both currencies and commodities as many markets in both sectors look set to break out from long-term consolidation patters, some of which go back several years.

Interest rate futures

The 30-year T bond broke to new lows for the current move and may yet test the low of 2013, printed on the 6th September basis the continuous back-adjusted chart. The trend remains down for the longer-term markets in this sector, but is still up for the shorter-term markets.

As we wrote last week, the interest rate futures markets will be one of the sectors to watch in 2014, as there is potential for some huge moves, particularly to the downside.

Good trading

Phil Seaton

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