Weekly Update – 3 February 2019 – LS Trader

January has been a fairly quiet month from a trading perspective with many markets in sideways ranges, digesting last year’s moves. That is likely to change and could do so from as early as this week as multiple markets are on the cusp of breakouts.

The long-term trends remain intact and are still down for stocks, up for metals, down for energies, up for interest rates, and up for the dollar overall.

Stocks

The January effect says that as goes January for stocks, so goes the rest of the year. January was a bullish month for stocks, which put in a considerable counter-trend rally. From its low point in early January, the S&P 500 has rallied almost 500 points. That rally becomes over 400 points if you start at the low print on December 26th. The season record, therefore, points to a good year for stocks. However, for now, the long-term trend is still down, and breakouts in either direction are out of range, so we’ll have to watch stocks from the sidelines for now and see what unfolds.

Commodities

The energy markets have spent much of the past three weeks going sideways. The long-term trend remains down. Crude Oil has completed a head and shoulders pattern with a break of the neckline, which suggests strength may continue. This gives a target of 6745, a long way above current prices. However, the long-term trend is still down, and the RSI has been unable to clear the 60 level decisively.

Natural Gas, currently the weakest market in the sector, looks poised to complete a change of long-term trend and breakout to the downside on the open this week.

Currencies

We’ve covered the January EUR/USD effect in recent weeks, which states that there is a strong tendency for this currency to put in its low or high for the year during January. Based on the March futures contract, those levels are 1.1337 and 1.1632. If this pattern, which has a 76% accuracy in past years holds, a break of either of those two levels would indicate which direction the currency is likely to move for the year. For now, the long-term trend remains down, so the technical picture favours that the high is in.

However, with the Federal Reserve has made mistakes with recent rate rises in the US, and hinted this week that those hikes would be paused and possibly reversed (as we suggested would be the case in past issues), would indicate dollar weakness, which would be bullish for the Euro. As ever, we will let the market tell us which way it wants to go and jump on for the ride when the timing is right. Until then, we wait.

Interest rate futures

Interest rate futures did see an increase in volatility this week, as we indicated in last week’s issue. However, the move has so far been insufficient for a breakout. The long-term trend remains up for the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update – 27 January 2019 – LS Trader

Many markets continue to consolidate, with moves being seen against the primary trend. There are, however, several markets within range of breakouts. The current long-term trends are down for stocks, up for metals, down for energies, up for interest rate futures, and mixed for the remaining commodities.

Stocks

Stocks have continued to rally against the primary trend this week, but the critical 60-level on the RSI, which is bear market resistance, has not been taken out on the S&P 500 or Nasdaq 100. Also, volume was much more substantial on the decline than it has been on the rally, where volume has continued to decline. This continues to support the notion that the long-term trend is down and that we will likely see stocks turn lower again soon and test the late December low.

Commodities

The metals have seen some weakness this week, before reversing sharply on Friday. Both Gold and Silver broke support, but may soon breakout back to new highs for the current move. Gold will likely breakout on Monday. Palladium, still by far the strongest of the metals, bounced off support and remains bullish.

Currencies

The British Pound has made quite a decisive upside rally over the past couple of weeks and looks to be heading for a change of long-term trend to up. This week has seen the RSI decisively break above the 60 level to enter the bull range. We wrote last year how the COT report showed commercials with a record all-time net long position, which flies in the face of conventional wisdom about Brexit being damaging to Britain. We can’t tell what the current commercial position is due to the US government shutdown.

The Euro dipped to a slightly new low against the Dollar but reversed sharply on Friday. The trend remains down. The Dollar also broke out against the Swiss franc, but so far without follow-through. The Dollar Index remains in a trading range, as it has been for the past several months.

Interest rate futures

Interest rate futures continue to consolidate but remain in a long-term uptrend across the board. The 30 Year T-Bond has undergone significant volatility compression so far this week, suggesting that a significant move is not far off.

Weekly Update – 20 January 2019 – LS Trader

Monday is Martin Luther King Jr. Day in the US, so most US markets will be closed. We’re at a fascinating juncture in multiple markets where we could be at or near a turning point ahead of potentially resuming the prevailing long-term trends.

Stocks

Stocks have continued to rally this week. The S&P 500 has rallied to just shy of the 61.8% retracement of the decline from the 21st September all-time high. The RSI is testing bear market resistance at the 60 level, so this could be a critical resistance level for stocks. This rally is still viewed as corrective at this stage but if it continues towards the 78.6% retracement levels that would suggest we could see a complete retracement. For now, the odds favour a turn lower and a test of the recent lows.

Commodities

Palladium rallied to a new all-time high this week but has pulled back from Thursday’s high, where an extremely high bullish sentiment had been printed. It’s possible that we may see more short-term weakness, but the trend remains bullish, and the market is well above support.

The energy markets have continued their corrective rallies and have now retraced 38.2% of the decline from the October high.

The grains markets are starting to show some signs of life, and we could be seeing a massive bottom forming in this sector, with some potential upside breakouts and changes of the long-term trend to up in the offing.

Currencies

The Dollar Index has rallied from the recent low. The RSI never broke the 40 level and therefore remains in the bull range, and the long-term trend is up.

EUR/USD has fallen for seven consecutive trading days and is now moving towards the lower end of the January range. As per previous updates, we’re on the lookout to see if the January effect holds this year with the high or low for the year being printed this month.

Interest rate futures

Interest rate futures markets declined this week and broke support in the process, bringing an end to the recent uptrend. The long-term trend remains up for the sector, but we could see bull market support at 40 on the RSI tested this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 13 January 2019 – LS Trader

The past week has seen the downtrends come to an end for now in stock indices and the energy markets. However, the long-term trend remains down, and both sectors may revisit their recent lows in the coming weeks. It should be noted that global stocks remain in a bear market, with prices below a downward sloping 200-day moving average.

Stocks

In addition to the Santa Claus rally, which points to a bullish year, we also have a bullish first five trading days of the year being bullish. This indicator has an 83.7% accuracy for predicting full-year gains when the first five trading days of the year are bullish.

However, the long-term trend is down, and global stocks are in a bear market. The sharp rally seen since the low on the 26th December is corrective and has not quite retraced 50% of the prior decline. In spite of that rally, the RSI remains in the bear range and has only managed to reach 53.2 on the S&P 500. The market is also back to a resistance level where prior support from the October low should now act as resistance. The daily candles also show a contraction and a loss of momentum. It’s possible that we may see further strength in the short-term, but the weight of the evidence still points to lower prices, and the December 26th 2018 low being broken.

Commodities

The energy markets continued their recent rally and broke above resistance, bringing the very profitable downtrends to an end. The LS Trader system exited all short positions this week, all of which had been very profitable since entering back in October for RBOB Gas, and early November for Crude, Brent, and Heating Oil. The long-term trend remains down. The rally has so far retraced around 38.2% of the decline since October and may yet turn lower again.

Palladium continues to print new all-time highs and remains bullish. Gold and Silver remain in uptrends but have not yet shown any signs of follow-through since the breakout. The weakest metal by far is Copper, which remains in a long-term downtrend.

Currencies

The dollar has seen further weakness this week. The Dollar Index has fallen to its lowest level since mid-October. For now, the long-term trend remains up, but the market is flirting with its 200-day moving average. The LS Trader system is currently flat all currency markets as there are no directional trends in the immediate term.

Interest rate futures

Interest rate futures have seen some price weakness so far this year, but all markets in the sector remain bullish and in long-term uptrends, holding above support.

A note on the COT (Commitments of Traders report). With the US government currently in shutdown, the COT reports are not being run so we cannot provide any comments on commercial positioning. This does not affect the system as we don’t use the COT data as part of the system, it is merely an interesting tool for spotting extreme or unusual positioning. The last data we have shown commercials still holding a huge net long position in the interest rate futures market. That likely remains the case.

Good trading

Phil Seaton

LS Trader

Weekly Update – 6 January 2019 – LS Trader

2018 ended on a high note for the LS Trader system, and it brought to an end a very profitable trading year. Much of the year saw challenging trading conditions, but volatility exploded in the last quarter to usher in a new trading climate and bring an end to the period of low volatility that had dominated most markets for the past couple of years. Volatile markets are much more profitable to trade, so 2019 looks like it should be another good trading year.

Stocks

The Santa Claus rally, which is where the market usually has a short, respectable rally for the last five trading days of the year, through to the first two in January. This year, that period began on the 21st through to the close on Thursday the 3rd. This year, the market finished up for that period, which is a bullish indicator for stocks for the year ahead.

We also have the first five days of January as the next seasonal indicator, as well as the January Barometer itself. Further additional seasonal data shows that pre-election years in the US are the most bullish for stocks. So, in terms of seasonal tendencies, this year has a decent chance of being bullish for stocks. However, we always view seasonal tendencies as just that, tendencies, and the technical picture still takes precedence. For now, the trend for stocks is down, but resistance is likely to be tested early next week following the sharp corrective rally since the 24th December.

Commodities

From last week: “Silver is following Gold’s lead and has broken out to its highest level since August. A change of trend to up could follow soon.” Silver completed a change of long-term trend this week, reaching its highest level since July. Gold also reached its highest level since June. However, both markets saw weakness on Friday. Palladium, still the strongest of the metals, printed a new all-time high on Friday after a very bullish $40 rally.

Currencies

The January effect in EUR/USD, a seasonal pattern that has been correct 76% of the time. This pattern indicates a strong tendency for EUR/USD to print its high or low for the year during January. In 76% of years, the high or low of the year for this currency has been printed during January.

The past week has seen general dollar weakness, which included some explosive price swings against the Yen. For now, the long-term trend continues to favour the dollar for all the majors except for the Yen and the Kiwi.

Interest rate futures

Interest rate futures rallied to their highest prices in almost a year, but all markets in the sector had an ugly reversal day on Friday. It remains to be seen if there is follow through to the downside next week, but the long-term trend remains up.

Good trading

Phil Seaton

LS Trader

Weekly Update – 30 December 2018 – LS Trader

We’d like to wish all our readers a very Happy and prosperous New Year.

At this time of the year, we usually write about the Santa Claus rally, which is where the market usually has a short, respectable rally for the last five trading days of the year, through to the first two in January. This year, that period began on the 24th, and currently, the market is up over that period. We won’t know whether that pattern will complete until the close on Thursday the 3rd.

Next week we will cover the outcome of the Santa rally and turn our attention to the January effect in EUR/USD, a seasonal pattern that has been correct 76% of the time.

Stocks

From last week: “The bullish sentiment reading on the S&P 500 has fallen to 7%. This is the lowest level seen since January 2016 and is an indication of how negative the market has become. Sentiment extremes such as these often precede corrective rallies..”. The stock markets did put in a sharp, corrective rally from a sentiment extreme. However, Friday’s candle was an indecision candle, which suggests this short, sharp rally may be running out of steam. The market remains below resistance, and the trend remains down.

Commodities

From last week: “Gold did break out as expected, completing a change of long-term trend to up for the first time this year. The RSI also broke above the 60 level.” Since the breakout, gold has continued to advance and has printed an impressive sequence of higher highs and higher lows since the bottom on the 16th August. The Head and Shoulders bottom on the monthly chart continues to form, and a breakout above the neckline on the monthly chart at 1377.5 could confirm that a new bull market is in place.

Silver is following Gold’s lead and has broken out to its highest level since August. A change of trend to up could follow soon.

London Cocoa, which is not a market that we write about often here could be on the verge of completing a head and shoulders bottom, and a change of long-term trend would be confirmed on a break of the neckline. A breakout could see London Cocoa rally to over 2000, exceeding the 2018 highs.

Currencies

From last week: “The dollar is on the verge of testing critical support against the Aussie, where a breakout to the downside would resume the long-term downtrend for the Aussie.” The Aussie did fall through support but only briefly and so far without follow-through. However, the long-term trend remains down for the Aussie.

Interest rate futures

From last week “we may see support in the Gilt tested and broken this week.” Gilts tested support almost to the tick, but support was found, and the market rallied, ending the week higher. This narrowly keeps the long-term uptrend intact for Gilts.

The US interest rate futures markets all printed new highs for the current move, and the long-term trend remains up.

Good trading

Phil Seaton

LS Trader

Weekly Update – 23 December 2018 – LS Trader

We’d like to wish all our readers Happy Holidays and a Very Merry Christmas. We’ll be back next week with the final LS Trader newsletter of 2018.

From last week: “…given the Fed meeting, triple witching and the current geopolitical climate, there is room for some large swings in the markets.” The markets certainly delivered some significant moves as the stock markets made sharp declines. The Nasdaq 100 has fallen over 20% from its peak, leaving many commentators stating that it’s now in a bear market. That 20% figure is nonsense, as it means that 19.9% is not a bear market, but 20% is! In fact, the Nasdaq 100 entered a bear market on the 24th of October according to our proprietary system when it completed a change of long-term trend to down. That’s what enabled us to get short far ahead of the crowd and catch this week’s decline.

Stocks

From last week: “The Nasdaq 100 is within range of testing support this week and may also breakout.” As mentioned above, the Nasdaq 100 did break support and make a sharp decline, ending the week lower by 8.51%. The S&P 500 also made a sharp decline, finishing the week lower by 7.37%. The S&P 500 may decline further to test the 200-week moving average, currently at 2379. The Nikkei and Dax also made similar declines as the long-term trend for global stocks remains down.

Sentiment on stocks has become extremely bearish. The bullish sentiment reading on the S&P 500 has fallen to 7%. This is the lowest level seen since January 2016 and is an indication of how negative the market has become. Sentiment extremes such as these often precede corrective rallies but cannot be used as a timing indicator on their own. Markets can remain extremely bearish for extended periods.

Commodities

From last week: “Gold came close to completing a change of long-term trend to up before moving lower. The RSI has attempted to break the 60 level but has been unable to do so decisively and therefore remains in the bear range. A breakout above last week’s high will likely change that.” Gold did breakout as expected, completing a change of long-term trend to up for the first time this year. The RSI also broke above the 60 level.

The energy markets got destroyed once again this week with all markets making new lows for the current move. Natural Gas, which is the only market in the sector currently in a long-term uptrend, also broke sharply lower, bringing the 2018 bull market to an end.

Currencies

The currency markets have seen mixed trading this week in a week that saw the Fed raise rates for the last time in 2018, and possibly for the last time in this tightening cycle. The Dollar rallied to its highest level against the Canadian dollar since May 2017. The dollar is on the verge of testing critical support against the Aussie, where a breakout to the downside would resume the long-term downtrend for the Aussie.

Interest rate futures

US interest rate futures all made new highs for the current move this week, and the entire sector is now in a long-term uptrend. Only the UK Long Gilt did not make a new high this week, and we may see support in the Gilt tested and broken this week.

Good trading

Phil Seaton

LS Trader

Weekly Update – 16 December 2018 – LS Trader

This week ahead sees the 2-day FOMC meeting and triple witching on Friday. It’s generally a week that sees declining volume as traders wind down for the holiday, but given the Fed meeting, triple witching and the current geopolitical climate, there is room for some large swings in the markets.

This past week saw us roll from December into March for all currency and stock index futures.

Stocks

From last week: “The long-term trend remains down for global stock indices, and we could see new lows for the current move completed this week.” The S&P 500 did break to new lows this week as anticipated, but so far the Nasdaq 100 has not. However, the Nasdaq 100 is within range of testing support this week and may also breakout.

Commodities

Gold came close to completing a change of long-term trend to up before moving lower. The RSI has attempted to break the 60 level but has been unable to do so decisively and therefore remains in the bear range. A breakout above last week’s high will likely change that.

The energy markets have traded mostly sideways this week and remain in a long-term downtrend except for Natural Gas. Natural Gas made a sharp move lower this week and broke support in the process, which resulted in the LS Trader system exiting a very profitable long trade. The system remains short the remaining four markets in the sector, all of which are very profitable trades.

Currencies

The British Pound gapped lower on Monday and made a new weekly low close for the current move, which was the lowest weekly close since March 2017. The long-term trend remains down. Sentiment is extremely negative for the Pound, as one would expect given the current negative news flow surrounding Brexit. However, the longer-term picture is not as bleak as it seems. There is substantial commercial buying as reported in the COT, which means that the smart money thinks the Pound will move higher. There is also some momentum divergence, waiting for a trigger. For now, the trend remains down, and it will require considerable strength for that to change.

Interest rate futures

Interest rate futures have had a mixed week having hit new highs for the current move before pulling back. The long-term trend remains up for interest rate futures except for the 30-year T-Bond, which for now, remains in a downtrend.

Good trading

Phil Seaton

LS Trader

Weekly Update – 9 December 2018 – LS Trader

Volatility has been the order of the day over the past week with huge moves and swings seen in many markets. This week has seen a change of long-term trend for interest rate futures, which are now in a long-term uptrend. Gold could also be on the verge of a change of trend to up over the next week or so. Seasonally, we’re in a strong time of year for stock indices and Gold.

Stocks

Stock indices have seen colossal volatility this week as the rally stalled once again almost exactly at the 61.8% retracement level of the September to November decline. The long-term trend remains down for global stock indices, and we could see new lows for the current move completed this week.

This Friday is quarterly stock index futures expiration, so the December contract will roll forward to March.

Commodities

The metals markets continue to show signs that they may have bottomed and are heading for a change of long-term trend to up. Palladium, the only one of the metals currently in a long-term uptrend, continues to lead the way, having printed new all-time highs this week. Gold could be on the verge of an upside breakout and change of trend as early as this week.

Volatility has been high in the energies this week with a series of indecision bars, known as high wave doji. These patterns print when the market has a long upper and a long lower shadow and closes the day reasonably near to where the day opened. It represents total indecision on the part of market participants. If markets break above last week’s highs that will suggest that the downtrend is over for now, but as long as markets remain below those resistance levels, the downtrend remains intact.

The exception to this is Natural Gas, which remains in a long-term uptrend. It’s possible that the market is printing a half-mast pennant, which would project to north of the 6.000 level if completed, depending on where the actual breakout level is.

Currencies

This week saw GBP/USD break to a new low for the current move, printing its lowest level since June 2017. Much of that is to do with Brexit uncertainty ahead of the Parliamentary vote on Tuesday. Volatility remains low, but we can expect to see that pick up this week.

The Dollar Index has seen some weakness this week, as has the dollar against the Euro. The long-term trend continues to favour the dollar against all the majors except for NZD/USD.

This Friday is quarterly currency futures expiration, so the December contract will roll forward to March.

Interest rate futures

From last week: “commercials hold a huge net long position, based on COT data, which means they continue to position for lower, not higher, interest rates (interest rate futures move inversely to rates). For now, the long-term trend remains down, but upside breakouts and changes of trend for a few markets in the sector are within range.” Interest rate futures finally rallied sufficiently to complete a change of trend to up for all markets in the sector except for the long bond. The long-term trend is now up for interest rate futures.

Good trading

Phil Seaton

LS Trader

Weekly Update – 2 December 2018 – LS Trader

Stock indices have continued their recent corrective rally, but all remain in long-term downtrends. Commodities remain weak overall, while the dollar uptrend remains intact. Interest rate futures remain in a long-term downtrend but continue to gain strength, with a possible change of trend to up on the horizon.

Stocks

From last week: “This is a bullish time of year seasonally, but the current technical picture takes precedent, especially the primary trend.” Stocks continued their corrective rally this week, and the Nasdaq 100 broke resistance late on Friday night. December is a strong month seasonally for stocks, but the long-term trend is still clearly down.

Commodities

The energy markets continue to get destroyed, but there are signs that the aggressive downtrend may be about to take a pause, as momentum is slowing, there is bullish divergence between price and RSI, and volatility has remained at elevated levels. However, the long-term trend remains down for all markets in the sector except for Natural Gas.

Currencies

The uptrend for the dollar remains intact. The Dollar Index may rally to test recent highs this week. There are also possible breakouts for the dollar against a handful of majors, which includes GBP/USD. GBP/USD closed on Friday just above a critical support level. The long-term trend is down, and the RSI is in the bear range, where it has been for the past several months. Interestingly, volatility in GBP/USD is at a low level, something that is likely to change over the coming week or so.

Interest rate futures

Interest rate futures continue to show signs that they have bottomed. As we have written several times over the past few months, commercials hold a huge net long position, based on COT data, which means they continue to position for lower, not higher, interest rates (interest rate futures move inversely to rates). For now, the long-term trend remains down, but upside breakouts and changes of trend for a few markets in the sector are within range.

Good trading

Phil Seaton

LS Trader