Weekly Update – 19 April 2020 – LS Trader

Stocks

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

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

Commodities

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

Currencies

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

Interest rate futures

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

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

Weekly Update – 12 April 2020 – LS Trader

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

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

Stocks

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

Commodities

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

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

Currencies

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

Interest rate futures

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

Weekly Update – 4 April 2020 – LS Trader

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

Stocks 

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

Commodities

From last week “The energy markets appear to be trying to bottom. RBOB Gasoline leads the way to the upside, and we exited our short position this week, for the biggest winning trade of the year to date.”

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

Currencies

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

Interest rate futures

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

Weekly Update – 29 March 2020 – LS Trader

Stocks

From last week: “Markets are reaching a volatility extreme, and there is also momentum divergence between price and RSI. Therefore, a corrective rally, which may be sharp, could begin over the next week or so. Such a rally could retrace around 38% of the decline from the all-time high printed on the 20th of February. Measuring from Friday’s low on the S&P 500, that would suggest a rally to the region of 2637. We may then see the next leg down to exceed the current lows.”

The markets rallied sharply as expected. The S&P hit a high of 2634.5, just below our target of 2637, before closing lower on Friday. We may see further strength over the coming week or so before the primary downtrend resumes.

Commodities

The energy markets appear to be trying to bottom. RBOB Gasoline leads the way to the upside, and we exited our short position this week, for the biggest winning trade of the year to date.

The metals markets continue to swing wildly. The long-term trend for metals is currently down.

Currencies

The Dollar Index sold off sharply this week as the dollar gained against the majors. The long-term trend continues to favour the dollar but a change of long-term trend is within range for the Dollar Index should weakness persist.

Interest rate futures

Interest rate futures have seen some strength this week. The shorter end of the curve remained above support, and the uptrends are intact. The 10 Year and 30-year T-Bond have also rallied this week. Whether they make it back to new highs remains to be seen.

Weekly Update – 22 March 2020 – LS Trader

The LS Trader System hit new all-time highs for the second consecutive week as high volatility and market trends persist.

Stocks

Stocks fell to new lows this week, falling below the December 2018 low as expected. This is likely to be just the first leg down in a broader bear market. New low weekly closes tend to persist with weakness the following week, so new lows are likely.

Markets are reaching a volatility extreme, and there is also momentum divergence between price and RSI. Therefore, a corrective rally, which may be sharp, could begin over the next week or so. Such a rally could retrace around 38% of the decline from the all-time high printed on the 20th of February. Measuring from Friday’s low on the S&P 500, that would suggest a rally to the region of 2637. We may then see the next leg down to exceed the current lows.

From a longer-term perspective, it would not be unreasonable to expect the 2000 level on the S&P 500 tested. From a bigger picture perspective, a 38% retracement of the entire 2009 to 2020 rally would see a decline to around 1606. It will not surprise me if we see those levels before this sell-off ends.

Currencies

From last week: “The Dollar Index opened the week sharply lower but then put in an even sharper 4-day rally, and will likely test the highs of the year this week.” The Dollar did rally, and the index, based on back-adjusted continuous futures, reached its highest level since 2003.

Interest rate futures

From last week: “Interest rate futures rallied to a new high on Monday, but the sold off. The long-term trend remains up, but support could be tested this week.” Support was tested and broken on the long bond and ten-year T-Notes. However, the shorter end of the curve held above support and remain in uptrends.

Weekly Update – 15 March 2020 – LS Trader

It’s been another great week in the markets and one that has seen the LS Trader System hit new all-time highs.

This week ahead sees the US Federal Reserve meeting. Current market expectations are for the Fed to cut rates by another 75 basis points and possibly more. They are expected to get to zero by the end of the year and stay there.

Stocks

It’s been a wild week with huge swings daily, which included the second biggest down day in history. It also saw the 10th largest up day for the Dow on Friday. Expect more wild swings this week.

Commodities

From last week on energies: “However, by our proprietary measures, volatility in the sector is not yet at an extreme, so the downtrend does have room to run.” The energy sector collapsed at the open on Sunday night with a huge gap lower. The market found support at Monday’s low and has bounced a bit higher, but remains in a steep downtrend.

Currencies

The Dollar Index opened the week sharply lower but then put in an even sharper 4-day rally, and will likely test the highs of the year this week.

Interest rate futures

From last week: “Sentiment on the 30-year T-Bond is at 98% bulls. As of now, there are no reversal setups, but with such extremes, pullbacks are likely.” Interest rate futures rallied to a new high on Monday, but the sold off. The long-term trend remains up, but support could be tested this week.

Weekly Update – 8 March 2020 – LS Trader

Many markets are at or reaching volatility extremes, so we could see some of the recent moves corrected this week with some sharp short-term reversals. However, many of these recent moves have changed the long-term trends, and more will likely follow. Volatile swings are likely to continue for the next week or so. The global macro picture looks bleak, and fear is at extreme levels.

Stocks

From last week: “If last week’s lows are taken out, the long-term trend will turn down.” The Dax was the first index to complete a trend change. Other indices may test trend defining support this week.

Commodities

Commodities continue to make big moves. The energy sector has been crushed, with Crude Oil down 10.07% on Friday alone. However, by our proprietary measures, volatility in the sector is not yet at an extreme so the downtrend does have room to run.

Currencies

The dollar has continued its recent sell-off, and the dollar index has now closed lower in 11 of the past 12 trading days.

Weakness in the dollar has resulted in strength in the Euro, and the January high in EUR/USD has already been exceeded, meaning that the January EUR/USD effect has failed this year.

Interest rate futures

Interest rate futures have gone parabolic, and are accompanied by volatility extremes. Sentiment on the 30-year T-Bond is at 98% bulls. As of now, there are no reversal setups, but with such extremes, pullbacks are likely. However, with yields expected to fall further, higher prices are still very possible.

Weekly Update – 1 March 2020 – LS Trader

Stocks

From last week: “We are possibly at or near to a sentiment extreme. This is evident by the cover of The Economist this week, which has a picture of stampeding robotic bulls for tech stocks. Therefore, we are possibly near the end of the trend and will likely see support tested this week.”

The sentiment extreme cover of The Economist marked the top to the day. The market collapse since then has been huge. Friday saw a bullish one-day recovery rally where the market moved sharply lower and then reversed, leaving a long lower shadow, and closing in the top third of the bar. This would suggest that we may see further strength if Friday’s high is taken out, before additional weakness back to new lows. If last week’s lows are taken out, the long-term trend will turn down.

Commodities

Most commodity markets sold off sharply this week, with metals and energies making big moves to the downside. The sell-off in gold appears to be counter-intuitive during a market crash, but weak hands sell their gold holdings to meet margin calls and offset their equity losses. This often happens in a crisis initially, as the weak hands get taken out. Once they are out, only the strong hands remain, and they bid the market up resulting in the expected behaviour.

Currencies

The dollar sold-off along with stocks, with the Dollar Index closing lower for six consecutive days. The long-term trend, however, is still up for the dollar.

Interest rate futures

Interest rate futures rallied across the board, making new highs in the process. Interestingly, as stocks corrected higher on Friday, interest rate futures did not give much back and made a strong close. The long-term trend remains up for futures.

Weekly Update – 23 February 2020 – LS Trader

Stocks

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

Added to this, we are possibly at or near to a sentiment extreme. This is evident by the cover of The Economist this week, which has a picture of stampeding robotic bulls for tech stocks. Therefore, we are possibly near the end of the trend and will likely see support tested this week. However, blow-off rallies are often seen at the end of such moves, so a sharp short-term rally can also not be ruled out. As ever, price action is king, and we wait to see what unfolds.

Commodities

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

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

Currencies

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

Interest rate futures

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

Weekly Update – 16 February 2020 – LS Trader

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

Stocks

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

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

Commodities

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

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

Currencies

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

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

Interest rate futures

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