Weekly Update – 21 January 2018 – LS Trader

The excellent start to 2018 continues as multiple markets continue to trend well. Stocks, in particular, continue to make new highs as the bull market continues. The dollar remains weak, as do interest rate futures, while commodities are mixed.

Stocks

Stocks continue their epic run and have made new all-time highs once again this week. Sentiment remains extremely bullish but slightly lower than it’s recent bullish extremes. Given the advance seen so far this month, it will take a steep correction for the markets not to register a bullish January, which, based on the January barometer, points to a full year of gains for stocks.

The Dax, which has been the weakest of late of the four stock indexes we trade at LS Trader looks poised to breakout to new all-time highs this week. This week the Dax reached levels not seen since early November.

Commodities

The Crude Oil markets made new highs for the current move on Monday but have eased during the week, but remain in strong uptrends. It’s possible that we may see further corrective price action, but for now, the markets remain above support. Commercials now have a record net short position according to COT data.

Gold printed its highest price since September but also eased as the week progressed. Similar price action has been seen in the other metals markets.

Lumber prices made their highest print since 1993 as the bull market continues. Sugar has seen some weakness but should find support from nearby levels, and last week’s low at 13.02 may hold. Commercials are near an all-time net long position. Bullish sentiment has also fallen to low levels, but have yet to decline to single figures, where the market often bottoms out.

Currencies

It’s looking increasingly likely that the Euro has put in its low for January. It will take a move back below 1.1964 to negate that, which is still possible given that we still have eight trading days left this month. If that is the case, then the January effect suggests that the low for the Euro may be in for the year. Time will of course tell, and it is possible that last week’s high at 1.2369 may also mark the high for the month and the year if we get sufficient weakness over the rest of the month. Either way, this is a pattern well worth watching due to its predictive effect for the whole year.

The British Pound has risen to its highest level since Brexit and is now trading above the lows that were seen in the weeks before Brexit.

Interest rate futures

The long-term trend is down for all five interest rate futures markets that we trade at LS Trader. This week saw a bit of a bounce in some of these markets followed by a resumption of weakness and new lows. The long bond fell to its lowest level since March last year.

The 5 Year T-Note is now at it’s lowest level since April 2010 and the 10 Year T-Note since July 2011. The only one of the five that has yet to break down is the UK Long Gilt, and a test of support looks likely this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 14 January 2018 – LS Trader

The excellent start to the year has continued with multiple markets trending well and more in the pre-breakout phase and likely to breakout soon.

Monday is Martin Luther King Day in the U.S, so U.S markets will have affected trading hours due to the public holiday.

Stocks

The stock market continues to get bullish seasonal indicators confirmed as the Santa Claus rally, which was already completed last week, was joined this week by the next seasonal indicator, which is the first five trading days of January. This indicator, which has an 83.3% accuracy in predicting full-year gains for stocks also completed this past Monday. We now wait for the end of the month for the January barometer, but unless we have a fairly drastic sell-off over the next couple of weeks, that indicator will be bullish as well.

Both the S&P 500 continue to dazzle to the upside, making new all-time highs in the process once again.

The Nikkei continues to advance since the breakout from the ascending triangle (that interpretation ignores the spike on the 9th November). From last week: “This week could see a test of 24020, which was last seen in June 1996.” The Nikkei reached our 24020 target, printing a high of 24025 before easing off somewhat.

The trend for global stocks remains bullish, and in spite of extreme bullish sentiment readings, that view will remain in effect until confirmed by the technicals.

Commodities

The energy markets, particularly Light Crude, which is currently our largest winning open position, continue to impress to the upside. Bullish sentiment on Crude has reached 94%, and COT commercials have reached a record net short position. Brent Crude also continues to rally and this week crossed the $70 level for the first time since late 2014.

Gold advanced 1.36% this week with most of the week’s gains coming on Friday, which was a strong day. The metals remain strong, with Palladium making new all-time highs, as we have been expecting for several weeks.

Currencies

The dollar index made its lowest print since January 2015 this week, a new 3-year low, as the dollar continues to show weakness against multiple major currencies.

The Euro, as expected, reached its highest level against the dollar in 3 years. Interestingly, sentiment is not that bullish, with only a 61% bullish reading. The commitment of traders reports shows that commercials have their largest short position on record against the Euro. Although trends often resolve in the direction of the commercials, we have seen many instances over the years, even in the Euro itself, where the commercials have had to capitulate and unwind their position, resulting in an extended trend. That could happen here.

Interest rate futures

The 30 Year T-Bond completed a change of trend to down this week but has yet to produce any follow-through. This now has the long-term trend down for all five interest rate futures markets that we trade at LS Trader.

Good trading

Phil Seaton

LS Trader

Weekly Update – 7 January 2018 – LS Trader

The year has got off to a flying start with bullish moves being seen in stocks and some decent moves in other markets. Due to many markets spending much of the past 12-15 months in low volatility trading ranges, 2018 is likely to be a year of breakouts, expanding volatility and momentum, and extended trends.

In other words, ideal trading conditions.

Stocks

The stock markets shrugged off a weak close to 2017 and opened the year with a bang and never looked back. The Santa Claus rally, which runs from the 21st December through to the 2nd trading day of the year, in this case, the 3rd January was bullish, and this points to a bullish year in stocks. The next seasonal indicator is the first five trading days of January, which has an 83.3% accuracy in predicting full-year gains for stocks is also off to a good start with a large four-day rally to kick the year off. Unless we get a huge down day on Monday, this indicator will also be bullish.

The biggest negative for stocks, in particular, the US stock indexes, is extreme bullish sentiment. In fact, bullish sentiment on the S&P 500 is at 95% bulls, which is the highest reading I could find. Bullish sentiment at extreme does not mean that a reversal is imminent, but large speculators have their largest long position since March 2013. A pullback to ease the sentiment may be seen in the next week or so, but is not necessary. All the technicals are bullish.

The Nikkei also launched big move to start the year as it broke out from an ascending triangle (that interpretation ignores the spike on the 9th November). This week could see a test of 24020, which was last seen in June 1996.

Commodities

From last week: “Light Crude made its highest rent since June 2015 but is heading into what may prove to be a strong resistance area around the 62.00 level.” Light Crude reached the 62.00 level, printing 62.21 before reversing slightly. Commercials now have a record net short position. The trend remains bullish for energies except for Natural Gas.

Sugar remains a choppy market but could be building up for a big move. Commercials are once again net long, not far from a record net long position. Such a position often results in a large up move. Time will tell.

Currencies

In recent weeks we’ve written about the January effect in EUR/USD and the tendency for this market to make its high or low for the year during January. It’s too early to say which way this will go, or even if the pattern will work this year. The low for 2017 was made on the first trading day of the year, which was the 3rd. This year the first trading day was the 2nd, and the low for the day was 1.2056 basis the March contract. Of course, we could also see a reversal and the high for the year printed this month.

The dollar index, which is a near-perfect inversion of EUR/USD fell to its lowest level since September, and the September low is the next target.

Interest rate futures

Interest rate futures resumed the downtrend this week as both the 5 Year T-Note, and the 3-Month Eurodollar (Sep-18 contract) fell to new lows for the current move. The 10 Year T-Note was also weak and tested the recent low. The 30 Year T-Bond remains the strongest and has yet to breakdown.

The UK Long Gilt remains range bound, trading roughly in the middle of the range that has been in place since March last year.

Good trading

Phil Seaton

LS Trader

Weekly Update – 31 December 2017 – LS Trader

We’d like to wish all our readers a very Happy and Prosperous New Year and a great year in the markets!

2018 is likely to be a very good year for traders as volatility continues to expand. Given that this year has been characterised by long periods of consolidation and low volatility, there’s a strong expectation that 2018 will deliver some monster moves.

Stocks

The Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year started on Thursday 21st December and continues through to the first two trading days of January, which this year will be Tuesday 2nd and Wednesday 3rd. So far, largely due to the wide range day on Friday and lower close in the S&P 500, the markets are currently negative for the period. If this period is not bullish, it points to a down year for stocks in the coming year with a high degree of accuracy.

The price action in US stocks over the past couple of weeks has not been impressive. The Nasdaq 100 has closed lower in 7 of the last eight trading days, not a strong close to the year.

Commodities

The energy markets remain extremely bullish as both Light Crude and Brent Crude continue to rally to new highs for the move. Brent made its highest print since May 2015 and may rally further to 69.63. Light Crude made its highest rent since June 2015 but is heading into what may prove to be a strong resistance area around the 62.00 level.

Metals have also been bullish this week, and this is one asset class that has big potential in 2018. There’s a possible inverted head and shoulders pattern being formed in Gold which, if completed with a neckline break would give a target of 1709.

Currencies

From last week: “The Dollar Index continues to trade within a narrow range, just below its 50-day moving average. This important range spans between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.” The Dollar index did break out of that range to the downside, in the direction of the primary trend, and completed a head and shoulders top pattern that gives a target down to 89.32. However, support can be expected at the September low around the 91.00 area.

We’ve previously discussed the tendency for the Euro to make its high or low for the year in January. EUR/USD did make its low for the year in 2017 on the 3rd January. This past week saw EUR/USD breakout to the upside. If this breakout is the real deal and EUR/USD continues to rise, that would suggest that a low for the year could be in. However, there’s plenty of trading in the month of January and ample time for the market to turn, and it’s also possible that the high for the year may be printed. Of course, as with all seasonal patterns, there’s no guarantee that this pattern will hold, but the past data does indicate a very strong tendency for this pattern.

Interest rate futures

Interest rate futures made a corrective rally this week but remain in long-term downtrends. As has been the case recently, the shorter-term markets remain the weakest. Will 2018 be the year that bonds break their long-term downtrend? It certainly could be if the huge head and shoulders top that is forming completes. Time will tell.

Good trading

Phil Seaton

LS Trader

Weekly Update – 24 December 2017 – LS Trader

We’d like to wish all our readers a very Happy Christmas. We hope you all have a fantastic festive season!

2017 is likely to end with the bull market in global stocks intact and with US stocks either at or near to all-time highs. Multiple markets across all the asset classes look poised to make some decent moves over the coming weeks with key breakouts potentially imminent in multiple currency, commodity, and interest rate futures markets. 2018 is likely to be a very good year for traders as volatility continues to expand.

Stocks

The Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year started on Thursday 21st but has so far seen little action. The bullish period continues through this week and the first two trading days of January.

Commodities

The energy markets continued their recovery from support the prior week, which keeps the long-term uptrend intact. The sole exception is Natural Gas, which printed its lowest level since November 2016.

Precious metals are correcting higher after recent weakness with Gold rallying sufficiently to test its 50 and 200-day moving averages. Silver has made a similar move. Copper has also seen strength and could breakout to new highs this week.

Cotton has made a decisive breakout and has rallied to its highest level since May, whilst London Cocoa and Coffee remain weak.

Currencies

The Dollar Index continues to trade within a narrow range, just below its 50-day moving average. This important range spans between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.

With narrow trading action being seen in the EUR/USD as well, the previously discussed tendency for the Euro to make its high or low for the year in January could result from the next breakout. We’ll have more to say on this in the coming weeks as we look for the same pattern in 2018, but note that EUR/USD did make its low for the year in 2017 on the 3rd January.

Interest rate futures

From last week: “This week, the 10 Year T-Note tested support almost to the tick but found support. We could see support tested again this week.” The 10 Year T-Note tested and broke support as expected, and the RSI broke the 40 level. Also, volatility is expanding within the trending zone. There is room for further weakness, with the next support level coming in around 122.35.

The long bond remains the strongest in the sector and did test short-term resistance this week as we suggested may happen in last week’s update but was unable to break through and a steep 3-day sell-off ensued, taking the long bond below both its 50 and 200-day MAs. As we’ve mentioned in previous weeks, there is a huge head and shoulders top pattern forming which could result in sharply lower prices. The trend for interest rates is now higher, which means prices are set to fall.

Good trading

Phil Seaton

LS Trader

Weekly Update 17 December 2017 – LS Trader

US Stocks have made new all-time highs once again this week as the global bull market remains in effect. There were a few breakouts this week in various commodities markets as volatility continues to awaken. This week is likely to see declining volatility as the week progresses, but watch for the Santa Claus rally in stocks towards the end of the week.

Stocks

New all-time highs were seen in US stocks as expected as the bull markets continue. While many people have been trying to call a top in stocks for most of the past couple of years the fact remains that there has never been a reason to be short. The 200-day moving average has been sloping upwards since March 2016.

As for a measure of strength and momentum, this week’s closing RSI value at 85.48 is the highest in decades. I had to go all the way back to January 1959 to find a higher reading, which is only two years after it expanded to its present 500 stocks! Things aren’t quite so bullish for the S&P 500 at daily chart level as we have some bearish divergence.

The Nasdaq 100 traded in a similar fashion to the S&P 500 and also made new all-time highs. In fact, the current trend in the Nasdaq 100 has been the biggest bull move in history in terms of points, and there is nothing on the chart to suggest that move is over.

International stock indexes lag the US markets, but the Nikkei could be gearing up for a new breakout after Friday’s reversal from fair value. The Dax is currently finding support at the 50-day moving average.

The trend for global stocks remains firmly up, and new highs still seem to be the order of the day. It’s going to take a decent-sized downside break in any of the four stock indexes that we trade at LS Trader to even think about a short trade. The long-term trend is likely to remain up for some months yet. Watch for the Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year. This year that starts on Thursday 21st.

Commodities

Gold came within points of a change of long-term trend to down but then reversed, narrowly keeping the long-term uptrend intact. Silver, which is already in a confirmed long-term downtrend, fell to a slightly new low for the current move before bouncing higher along with Gold.

Cotton made an upside breakout, reaching its highest level since May and completing a change of long-term trend to up. There is plenty of chart space for further strength as the next level of structural resistance does not appear until the 85.00 area.

Brent Crude made the expected breakout and new high but then reversed sharply but held above support.

Currencies

The US dollar has had a mixed week again but appears to be on the verge of at least a couple of breakouts, most likely against the Canadian dollar. The market has tested resistance in October and November but has yet been unable to punch through. That could happen this week. With volatility at low levels, there is potential for an extended move should the breakout prove successful.

The Dollar Index itself is trading within a fairly narrow, but important range, between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.

We’ve written in previous years about the tendency for the Euro to make its high or low for the year in January, and that held true once again in 2017. We’ll have more to say on this in the coming weeks as we look for the same pattern in 2018.

The December currency futures went off the board this week and rolled to March.

Interest rate futures

Interest rate futures remain in a long-term downtrend with the shorter-term markets still the weakest. The three month Eurodollar and 5 Year T-note lead the way to the downside.

This week, the 10 Year T-Note tested support almost to the tick but found support. We could see support tested again this week. The long bond remains the strongest in the sector and may test short-term resistance this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – LS Trader – 10 December 2017

The past week has seen mixed trading in several asset classes, with new all-time highs being seen in the S&P 500, the dollar continuing its recovery, and some decent sized moves in several commodities markets, which includes downside breaks in precious metals.

This week sees the last Fed meeting of the year. The two-day meeting is on Tuesday and Wednesday this week. This Friday is December triple Witching, which sees the quarterly stock index and currency futures expire and roll to the March contract.

Stocks

The bull market in stocks remains intact in spite of a few attempts to break down. Breaks of short-term support have been met with buying, and new highs could be seen again this week.

The S&P 500 fell on Monday and Tuesday before finding support on Wednesday and turning higher, before making an all-time high close on Friday, but a little below the all-time intraday high printed on Monday.

The Nasdaq 100 traded in a similar fashion and found support just above its 50-day moving average. The recent sell-off only took the RSI down to 45, well above the 40m level, which is bull market support. For now, the long-term trend remains up, and new highs look a distinct possibility.

Volume was above average, but that’s to be expected as many people commence rolling to the next contract around a week ahead of expiry. The December contract expires this coming Friday.

Commodities

Brent Crude broke short-term support but reversed higher on Thursday and Friday and may be poised to breakout to new highs again. Similar moves have been seen in the other energy markets except for Natural Gas, which this week has made it’s umpteenth breakout of the year to the downside.

Gold’s recent weakness has continued this week, and a change of long-term trend to down is very much within range this week. Silver, by far the weakest of the precious metals, has already broken to the downside and is trading at its lowest level since July.

Currencies

The Dollar Index rose throughout the week and moved back above its 50-day MA. However, volatility has continued to compress throughout the advance of the past two weeks, and the RSI, although rising, remains below the 60 level, which suggests the recent rally is corrective and against the primary trend, which is still down.

The Australian dollar had a mixed week, initially breaking above short-term resistance before reversing and falling to new multi-month lows on Friday.

The US dollar could be on the verge of a long-term change of trend to up against the Canadian dollar. The Dollar is also within range of an upside breakout against the Yen and Swiss franc, where the long-term trend already favours the dollar.

EUR/USD remains in a long-term uptrend in spite of recent weakness. Commercials have a near-record net short position and are now the most short they have been since 2007.

Interest rate futures

Interest rate futures remain in a long-term downtrend. As has been the case for a while, the shorter-term markets are the weakest and the 30 Year T-Bond is the strongest. The 10-Year T-Note remains very near to critical support, which if broken could yield a significant decline, potentially all the way back to the March lows around 121.78

Good trading

Phil Seaton

LS Trader

Weekly Update – 3 December 2017 – LS Trader

Stocks hit new all-time highs on Thursday but then had a bit of a wobble on Friday, where, by recent standards, a steep sell-off ended with an equally sharp recovery. This resulted in the S&P 500 closing lower by just 0.15% for the day.

Stocks

The S&P 500 posted a new all-time high this week, and after a round trip on Friday, ended the week higher by 1.65%

From last week on the Nasdaq 100: “There is also bearish divergence between price and RSI as well as other measures of momentum, so although the trend is up, the rally is weak and long in the tooth.” Momentum continued to decline this week as evidence by doji on Monday and Tuesday, followed by a steep sell-off on Wednesday. Thursday saw a bit of a recovery, but Friday has a similar round-trip pattern to the S&P.

The Nikkei, which rolls this week to the March contract, closed the week flat and has printed an indecision candle on the weekly chart. Friday’s close us roughly in the middle of November’s price range.

The Dax has seen further weakness this week and on Friday closed below change of polarity support from the June high. Short-term support has also been broken, so things are looking a bit more bearish for the Dax than they have in some time. Friday’s close was also decisively below its 50-day moving average, and the RSI has broken the 40-level, which is bull market support. This suggests further weakness ahead, but for now, the long-term trend remains up. If weakness persists, the Dax will almost certainly be the first of the stock indexes that we trade at LS Trader to complete a trend change to down.

Commodities

The energy markets had a dip during the first half of the week but recovered with a strong day on Friday and may now make new highs for the current move. RBOB Gasoline has been the weakest of the four energy markets in a long-term uptrend. Natural Gas remains the weakest in the sector and the only one in a long-term downtrend.

Metals have seen some weakness this week. Silver has been particularly weak, dropping 4.12% and leading the way to the downside. Silver remains the only one of the four major metals markets in a long-term downtrend. Gold has also seen some weakness but remains in a choppy range between its 50 and 200-day MAs, both of which are flat. The RSI is also near the 50 level, and together these indicate an almost complete lack of trend, which has been the case for the last couple of months.

Currencies

EUR/USD looks poised to test the November top, and if successful, may go on to test the August high, and potentially exceed it. The dollar index made a two-month low last week and may move lower again this week, resuming the long-term downtrend. The RSI remains is back in the bear range, and we may see weakness towards the September low over the coming week or so.

From last week on the British Pound: “A move above last week’s high accompanied by a decisive move above 60 on the RSI may give rise to higher prices, possibly back to the local top at 1.3695.” The Pound rallied sharply, and the RSI broke the 60 level and is now in the bull range. Further strength may follow with possibly a new high for the year.

Interest rate futures

Interest rate futures have seen a good uptick in volatility this week. As before, the shorter-term markets remain the weakest. The 3-month Eurodollar dropped to its lowest level since March 2015 basis the back-adjusted continuous contract, and the 5 Year T-note made its lowest print since March this year.

Good trading

Phil Seaton

LS Trader

Weekly Update 26 Nov 17 – LS Trader

The past week was a shortened trading week due to the US Thanksgiving holiday. It is also a week characterised by lighter trading volume. Things should be back to normal this week.

Stocks

From last week: “The S&P 500 also broke support this week but also reversed higher from Wednesday’s lows and may yet breakout to new all-time highs.” The S&P 500 did breakout to new all-time highs this week and finally reached and exceeded our long-standing 2600 target. However, it did so on the lightest trading volume of this year today. That is to be expected during a holiday week and next week will give a stronger indication of the strength of the trend.

The Nasdaq 100 reached the 6400 target written about here in recent weeks from the running wedge, but this rally has also been on pitiful volume. There is also bearish divergence between price and RSI as well as other measures of momentum, so although the trend is up, the rally is weak and long in the tooth.

Commodities

Sugar has continued to trade gradually higher, albeit after a correction since it broke the upper boundary of the near five-month ascending triangle during the prior week. Sugar has a bullish COT profile due to a recent rare record net long position of commercial hedgers, and 16.59 is the next target.

Lumber finally exited, delving our fifth largest winning trade of the year and over 6000 points since we entered back on the 5th September. It was interesting to note that our long-standing target of 46100, mentioned many times in prior weekly updates, was so close to the actual top of 46190.

Currencies

EUR/USD closed above the right shoulder at 1.1921 which we wrote about last week, and this confirms the failure of the head and shoulders top and keeps the long-term uptrend for the Euro intact. We may now see further Euro strength and EUR/USD head higher towards 1.21.

The rally in the dollar index from the September low to the October high was insufficient to give a change of long-term trend to up. The head and shoulders bottom pattern has also been invalidated. As we wrote last week, failed patterns often give stronger signals than successful patterns, and the index remains in a long-term downtrend and may make its way all the way back to the September low.

The British Pound has held support and has consolidated this week above its 50-day MA, keeping the long-term uptrend intact. Price also remains above the 200-day MA. However, the RSI is butting its head against the 60 level, which is bull market resistance. A move above last week’s high accompanied by a decisive move above 60 on the RSI may give rise to higher prices, possibly back to the local top at 1.3695

Interest rate futures

Interest rate futures have continued to consolidate but have been sideways to up this week. The long bond has run into resistance which has held for a couple of months, but price remains above both its 50 and 200-day MAs.

The 3-month Eurodollar future is the weakest market in the sector and this week it fell to its lowest level since June 2015 basis the back-adjusted continuous contract, actually dipping below its 200-week MA in the process.

The trend remains down for interest rate futures, with the shorter-term markets being the weakest.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 Nov 17 – LS Trader

The week ahead will be a shortened trading week due to the US Thanksgiving Holiday on Thursday.

The last week has seen mixed trading in many sectors as the markets consolidate the recent moves. An increase in volatility has been seen in several markets with weakness during the first half of the week being mostly recovered by the end of the week. Such moves have been seen in the energy and stock markets in particular.

Stocks

From last week: “…This can be clearly seen on the Dax and the Nikkei, and the uptrend is certainly under pressure this week in the Dax.” The Dax broke support this week and also fell below the June high which we have mentioned in previous updates. Prior resistance becomes support due to change of polarity. However, on a closing basis, that prior resistance level has held, so we can’t count this as decisively broken as yet, although there has been some chart damage done over the past couple of weeks.

The Nikkei narrowly held support and recovered sharply with a rally from Wednesday’s low, but selling returned on Friday. Support could be tested again this week, but for now, the trend remains up.

The S&P 500 also broke support this week but also reversed higher from Wednesday’s lows and may yet breakout to new all-time highs.

Commodities

The energy markets declined considerably during most of the week but reversed sharply on Friday. Brent crude printed a bull sash reverse pattern on Friday, and Light Crude had a bullish engulfing pattern, which kept both uptrends intact from not far above short-term support. Heating Oil was stronger still and recovered a shallower correction to almost get back to the recent high.

Sugar broke the upper boundary of the near five-month ascending triangle this week. As per previous updates, Sugar has a bullish COT profile due to a recent rare record net long position of commercial hedgers. 16.59 is the next target.

Orange Juice rallied to its highest level since March this year. Interestingly, commercials have also recently had a net long position, accumulating large long positions between June and September.

Currencies

The dollar index’s inverted head and shoulders bottom interpretation was invalidated this week as the market broke back below the neckline. Failed patterns often give stronger signals than successful patterns. The prior breakout above the neckline, which ultimately failed, did not rally sufficiently to give a change of trend for the index, so the index remains in a long-term downtrend.

EUR/USD, which moves inversely to the dollar index, naturally also failed the head and shoulders top with a decisive move back above the neckline. In classical terms, the failure will be confirmed with a close above the right shoulder at 1.1921.

The Australian Dollar completed a change of trend to down this week with a decisive break of support. The New Zealand dollar fell to its lowest level since June 2016 as the long-term downtrend continues.

The British Pound continues to consolidate at a critical level, finding support at the upward sloping trend line from the March low. A decisive break of this line could lead to a change of trend to down and would give an initial target of 1.2662 and possibly all the way back to the March low around 1.2211 further out.

Interest rate futures

Interest rate futures have consolidated this week but remain in long-term downtrends. The shower-term interest rate markets are the weakest, and we remain short.

Good trading

Phil Seaton

LS Trader