Weekly Update 5 March 2017 – LS Trader

Global stocks have seen continued strength this week with multiple indexes making new all-time highs. Many markets remain in a neutral trading environment, but there are signs that multiple markets are beginning to awaken and that we could see some breakouts, volatility and price expansion over the coming weeks.

Stocks

The S&P 500 made a thrust higher on Wednesday to all-time highs on above average volume. Price went over 3.618 standard deviations above fair value on Wednesday, which is the first time that has happened since October 2016. Volume has since declined with price so it’s possible that Wednesday was a blow off top and that we may see some short-term weakness ahead. Volatility remains elevated. This week’s high RSI print at 82.65 is the highest RSI reading since November 2010; such has been the strength of the recent rally.

The Nasdaq 100 also posted a new all-time high bit based on some of our proprietary metrics has been weaker than the S&P 500 and has also undergone quite a substantial volatility decline. There is no doubt that the long-term trend is very much up in both U.S. markets and the longer-term focus remains up, but a corrective pullback of larger magnitude than has been seen since November is due.

It’s not only U.S. markets that are at all-time highs; the FTSE 100 also posted a new all-time high this week, having broken out of a 16+ year consolidation. The German Dax has also shown some strength this week but remains below its April 2015 high of 12429.5.

Commodities

The Crude Oil markets remain in an incredibly tight range as volatility continues to compress in a classic line market environment. The average true range in Crude has almost dropped in half since December. When this market eventually breakouts out, the resultant move is likely to be large indeed.

Gold and Silver’s counter-trend rally came to a sharp halt this week. Monday saw a doji printed on the daily chart and prices traded lower throughout the week, crossing back below the 200-day moving average. The long-term trend remains down for both precious metals.

Currencies

As has been the case for the past couple of months, the currency markets remain in a range bound, two-way rotational random market environment. However, there have been signs that the long-term dollar uptrend may be about to reemerge. The Dollar Index reached its highest level in almost two months on Thursday before a pullback on Friday.

There are similar patterns evident in other currencies, and we continue to expect an eventual resolution in favour of the dollar. As with the Crude Oil markets, the currency markets are also undergoing volatility compression, but in the currency markets, it has lasted even longer. This suggests that the long-term trends have further to run and that we should see the Dollar Index make new highs, and other currencies, such as the Pound and Euro, fall to new lows beneath their January lows.

Interest rate futures

We’ve been writing for weeks that the recent strength seen in interest rate futures is counter-trend and that the long-term downtrend should eventually resume and prices fall below their December lows, and that remains the case in all the U.S. interest rate markets. The 3 Month Eurodollar has already exceeded that low and the longer-term markets may follow suit soon.

The exception to that may be the UK Long Gilts, which have been much stronger than U.S. markets. Gilts this week reached their highest level since October last year and have retraced more than 61.8% of the decline from the August all-time high.

Good trading

Phil Seaton

LS Trader

Weekly Update 26 Feb 17 – LS Trader

US stocks printed new all-time highs again this week before a slight pullback. Some commodity markets are showing signs of life, but the currency markets continue to consolidate. Interest rate futures are making a counter trend rally, which should terminate over the next few weeks and result in a resumption of the primary trend.

Stocks

The S&P 500 printed a new all-time high again on Thursday but ended the day lower. Further weakness was seen on Friday before a recovery late in the day, which saw the market close up for the eighth consecutive week. The weekly chart has volatility expanding nicely in the trending zone, but volatility has started to decline on the daily chart. This suggests possible weakness in the short-term but keeps the longer-term focus pointed higher. This week’s high RSI print at 80.45 is the highest RSI reading since November 2010; such has been the strength of the recent rally.

The Nasdaq 100 has seen almost identical price and volatility behaviour as the S&P 500. As before, volume in both indexes remains subdued.

Commodities

The energy markets remain within a tight range, with the exception of Natural Gas. The Crude oil market has stayed within a tight $2.50 box range since the first week of the year. This is a classic line market environment. A line market is where you can draw a horizontal line across the chart right through the price action, which effectively means the market has gone nowhere. When these markets do break out of this narrow, low volatility environment, the resulting move is likely to be big.

Gold printed its lowest volatility reading on Wednesday of this week since August last year and then turned higher with price on Thursday and Friday as the market moved decisively above its 200-day moving average. However, the long-term trend is still down.

Silver is still the stronger of the two precious metals and has been trading above its 200-day MA for most of February. Here volatility is much higher than Gold’s, but the advance is being supported by increasing volume. Four days this week have seen above average volume.

Currencies

The currency markets remain in a range bound, two-way rotational market environment. The long-term trend continues to favour the dollar, but short-term dollar weakness persists at this time.

The Australian dollar is one market that could potentially breakout against the dollar. The market is currently right near the top of a rectangle that has been in place for almost a year. So far, all attempts at resistance have resulted in a turn lower.

Interest rate futures

Interest rate futures have moved higher this week, but this is still viewed as a counter trend rally. The long bond remains below various resistance levels that we have mentioned in previous weeks.

The shorter-term 5 & 10 Year T-Notes are looking more bullish as both are just slightly above recent resistance and the RSI has just poked above the 60-level. There has also been a huge increase in volume, much of which is due to the quarterly roll from the expiring March contract to the June contract. There could still be further to run, but the long-term trend is still down for all markets in the sector.

Good trading

Phil Seaton

LS Trader

Weekly Update 19 February 2017 – LS Trader

Monday is Presidents’ Day in the U.S. so many markets will be closed, and it will, therefore, be a shortened trading week.

The stock markets remain bullish, with U.S. indices printing new all-time highs again. Currencies and interest rate futures remain in consolidations, and commodities remain mixed.

Stocks

From last week: “prices at all-time highs are not a bearish characteristic!”. The S&P 500 printed new all-time highs again this week. Seven consecutive up closes ended on Thursday with a slightly down day after the new high at 2351.5 was printed on Wednesday. Volume remains below average, but there was an increase in volume on the weekly chart this week. As noted last week, with the exception of low volume, the technical picture remains bullish at this time.

The Nasdaq 100 has been stronger still, and following a small down day on Thursday printed its own new all-time high on Friday. The Nasdaq 100’s volatility has expanded to its highest reading since August last year according to our proprietary measures. This is not yet at an extreme level, but it’s getting close.

Commodities

The energy markets continue to undergo volatility compression, and volatility has been in decline in the Crude markets since mid-November. Price has stayed within a tight $2.50 box range since the first week of the year. This narrow range, low volatility environment is unlikely to persist too much longer, and we can expect a large move once we get an eventual breakout, whether that is to the upside or downside.

Gold has consolidated this week and continues to trade in the vicinity of a flat 200-day moving average. There is also below average volume in the market and declining volatility, so the recent rally from the mid-December low is not as compelling as many are making out. Further strength is required before a change of long-term trend to up comes within range.

Currencies

The currency markets remain without direction, and rather unusually, we remain flat all the currency markets as there are no trends to be found in the short-term. The long-term trend continues to favour the dollar, but not by much against many currencies. The technicals remain supportive of the dollar uptrend, but not by much.

EUR/USD, which moves inversely to the dollar index, fell to its lowest level in over a month before printing a bullish reversal candle on Wednesday, followed by a bullish candle on Thursday. This took the market back to a test of the 50-day MA, but weakness returned on Friday. I have no interest in trading this market until we get a decisive breakout in either direction. As it stands, the odds still favour that breakout being to the downside. A change of trend breakout to the upside remains out of range.

Interest rate futures

Interest rate futures continue to consolidate around the 50-day MA and above the recent lows. The RSI remains in a range between the 40 and 60 levels, and there is nothing doing in this sector at present. We continue to favour an eventual resolution of this consolidation to the downside, with new lows to follow.

Good trading

Phil Seaton

LS Trader

Weekly Update 12 February 2017 – LS Trader

US stocks hit new all-time highs yet again this week. The dollar has turned around its six-week period of declines and finished the week higher. Strength continues to return to the metals, and interest rate futures continue to consolidate above their recent lows.

Stocks

The S&P 500 hit new all-time highs on Thursday and Friday as the 2300 level was reached and exceeded for the first time. All of the metrics bar one are supportive of the trend. That exception is volume, which continues to print below average levels.

The Nasdaq 100 has now closed higher for six consecutive days, printing a new all-time high in each of the last four days. Volatility is expanding nicely, and the RSI has reached a bullish 74.78, although there is slight bearish divergence. As with the S&P 500, the real negative is the lack of volume fuelling the move, but prices at all-time highs are not a bearish characteristic!

European stock indexes continue to lag the US markets. The Dax is still some 750 points below its all-time high, and the FTSE 100 is just over 100 points below its high.

Commodities

Gold and Silver both continued to advance this week. Gold reached its 200-day moving average on Wednesday before pulling back, but the short-term trend is up. Silver was stronger still and did not see weakness at the end of the week. The long-term trend is still down for both of these metals, but as before, that could change over the coming weeks if we see continue strength.

Copper and Palladium have seen renewed strength this week. Palladium looks to complete the recovery from the sharp decline last month and looks set to test the local top this week. Copper has been stronger still and made a thrust breakout to new highs on almost 200% volume readings. The RSI also broke above 60 on Friday. Friday’s high was the highest print since May 2015 for Copper.

Currencies

The dollar index ended its run of six consecutive down closes and reversed higher with a bullish engulfing pattern on the weekly chart. The RSI remains in the bull range, and the long-term trend is still up for the dollar, so we may yet see new highs in the index.

Of course, we have seen the inverse price action in the Euro, where the long-term trend is still down. Here the RSI remains in the bear range and we may see price head lower towards the January 3rd low.

Interest rate futures

Interest rate futures briefly moved above their 50-day moving averages before finding resistance just below the recent highs and turning lower again. That level was also the 38.2% retracement level of the decline from the November high.

The RSI once again has been unable to break above the 60 level having tested it again this week. This price action keeps the RSI in the bear range. If those resistance levels hold in terms of the January high, Fibonacci levels and 60 on the RSI, we can expect new lows in the not too distant future.

Good trading

Phil Seaton

LS Trader

Weekly Update 5 February 2017 – LS Trader

Stocks were unable to post new all-time highs this week but after weakness early in the week have rallied back to within touching distance of the recent highs. The trend remains up for stocks. The dollar has continued to weaken as seen by a six-week decline in the dollar index. Commodities remain mixed but will benefit from a weaker dollar if it persists.

Stocks

The S&P 500 remained above short-term support and pushed higher on Friday to close just below the all-time highs printed during the prior week. Once again, volume has continued to decline and is not supporting the uptrend.

The Nasdaq 100 did not post new all-time highs this week but also closed just below the recent highs on Friday. Here also we see below average volume and declining volatility. These are not characteristics that support the continued uptrend.

The January stock market barometer says that as goes January, so goes the year. This indicates that when January closes the month higher, as was the case this year, that stock markets finish the year higher with a high probability of accuracy. Of course, that does not mean that the markets will end the year up, it just reveals a tendency that has been seen in the historical data.

Commodities

The commodities markets remain mixed regarding their long-term trends. The energy markets continue to consolidate below the recent high posted at the end of last year. The long-term trends remain up, but price has so far been unable to breakout to confirm the resumption of the uptrend.

Gold and Silver were both higher this week, and both continue to show signs that an intermediate bottom was printed back in December. For now, the long-term trend is down, but that could change over the coming weeks if we see continue strength.

Lean Hogs continues to grind higher and this week reached its highest level since July. Volatility is in the sweet spot for further trend, but the rally is not being supported by volume.

Cotton broke out of a consolidation that lasted for most of January and may now test the August 2016 high at 77.98. London Cocoa broke the December low and printed its lowest price since October 2013.

Currencies

Over the last few weeks, we’ve been writing about the tendency seen in the historical data for EUR/USD to post either its high or low for the year within the month of January. Since the market exceeded the January high on Thursday if this indicator is to hold true this year, then the 1.0374 low printed on the 3rd January will not be violated. This would suggest further strength for the Euro this week and general dollar weakness.

However, the long-term trend is still down for the Euro, and the recent rally has not seen impulsive price action but has instead seen choppy, corrective and overlapping bars on the charts, hardly a characteristic of a strong market.

Weakness is being seen in the dollar against many of the major currencies, and for the first time in a long time, some changes of long-term trend are coming within range, particularly in the commodity-based currencies of Australia, New Zealand and Canada.

This dollar weakness is evident in the dollar index which has now closed lower for six consecutive weeks. Such price action is not bullish and calls into question the prevailing dollar bull market consensus. For now, the long-term trends continue to favour the dollar, but the dollar will need to turn from not much below the recent lows to keep the trend intact.

Interest rate futures

The 50-day moving average remains the controlling moving average for the interest rate futures sector. This moving average continues to provide resistance for this sector, and it has since October last year. The long-term trend remains down, and volume and volatility have remained low during this correction that has been in place since the mid-December lows.

Additionally, the RSI has been unable to break above the 60 level on all rally attempts, which keeps the RSI in the bear range. Therefore, we continue to favour new lows in this sector and a resumption of the downtrend over the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 29 January 2017 – LS Trader

Stocks hit new all-time highs this week, which included the Dow 30 finally hitting the 20,000 level. The trend is up for global stock markets. Most other markets, particularly currencies and interest rate futures continue to consolidate, but a few are in pre-breakout mode.

Stocks

The S&P 500 narrowly held on to short-term support and rallied to new all-time highs. Volume has, however, continued to decline and is not supporting the uptrend.

The Nasdaq 100 also rallied to new all-time highs and remains stronger than the S&P 500. Volatility is on the rise and is in trend mode, but here too, volume is not supporting the market.

The Dow 30 finally broke the 20,000 level and also posted new all-time highs. The prior resistance level, which was tested multiple times, should not act as support if the trend is good. A move back below 20,000, particularly below 19,847 would suggest that price would pull back further.

The trend for all three US indexes mentioned above is up. It is also up for the Dax, Nikkei and FTSE 100. None of these markets are being supported by volume and therefore remain subject to possible weakness.

Commodities

Commodities markets remain mixed with some markets and sectors in long-term uptrends and others in downtrends. The majority, however, are consolidating at present ahead of the next trending campaign.

The question at the moment in the metals markets, particularly in Gold, is whether the mid-December low is a medium to long-term low and whether the rally from there is the first leg up in a new bull campaign. If so, this week’s correction should ultimately prove to be corrective, and all that remains is how much further the correction goes. The low at 1127.20 basis April futures must hold other the long-term bear trend remains intact. The RSI is in the bull range, but the long-term trend is still down until we have price confirmation to the contrary.

Silver has been stronger than Gold this week and could test short-term resistance and the 200-day moving average over the next week or so. The trend, for now, is still down.

Palladium and Copper remain in long-term uptrends. Palladium this week reached its highest level since May 2015 before a sharp reversal halted the uptrend for now. Copper remains just below its 2016 high but could breakout this week. Price closed on Friday right on the 200-week moving average, a very long-term trend indicator that the market has been below for most of the past four years.

Currencies

From last week on EUR/USD: “I expect resistance will be found somewhere between the 38.2 and 50% (1.0868) retracement levels of that decline before the market turns lower once more.”

Volume and volatility continue to decline in EUR/USD. Although the Euro made a slight new high for the current move this week, it remains below resistance. Friday’s close was right on the 50-day moving average, but the trend is still down.

The technicals continue to support lower prices. Price has been unable to break the December high, remains below the 50% retracement of the decline from November, and more importantly, the RSI remains in the bear range and after several attempts has been unable to break the 60 level, bear market resistance. The recent rally has been on below-average volume and has also seen a substantial volatility decline. None of these is consistent with a continuation of the trend higher and all point to a resumption of the downtrend over the coming weeks.

With only two trading days left this month, it’s highly likely that the 1.0347 low print on the 3rd of January will hold. It is more likely that we see a slight new high due to the proximity of the market to last week’s highs. Once the month is over we will have the high and lows for the month, which as covered in recent weeks, have a tendency to be either the high or low for the year. Time will tell.

Interest rate futures

The long-term trend for interest rate futures remains down, and prices ended the week lower. These markets are consolidating between the 38.2% retracement level and the 50-day MA (resistance) and the 50-month MA, which has been the controlling support MA for almost ten years. This consolidation phase may continue for a week or so more yet before the long-term trend resumes.

Good trading

Phil Seaton

LS Trader

Weekly Update 22 January 2017 – LS Trader

The past week has seen Donald Trump inaugurated as the 45th President of the United States. It will be interesting to see what impact that and his policies have on the financial markets over the coming years. As of now, the long-term trends are up for stocks and the dollar, down for interest rate futures, and mixed (but starting to turn bullish) for commodities.

Stocks

The S&P 500 failed to breakout to new all-time highs again and remains in a very tight range. This range is extremely tight and is unsustainable, meaning that a breakout is going to come, one way or the other. The all-time high print remains at 2277 basis the March E-mini contract. The Nasdaq 100 did make a new all-time high on Friday, but both Thursday and Friday’s candles show indecision and rejection of the highs.

The FTSE 100 posted a new all-time high on Monday at 7297, which coincided with the highest ever volatility reading on the daily chart according to our proprietary algorithms. When such extreme readings occur, the odds strongly favour mean reversion to fair value, which is exactly what happened. Fair value was hit almost exactly at Friday’s low.

It will be interesting to see whether this level acts as support, (in long-term uptrends, reversion to fair value is typically where large fund algorithms kick in for them to add to their long position) or whether price slices through as volatility continues to compress. If volatility continues to compress, we may see further price weakness to around the 7000 level. The trend remains up.

Commodities

From last week: “several commodities are showing early bullish signs. Soybean Meal and Soybeans are of particular interest.” Both of these markets made thrust breakouts on high volume and volatility increased on both markets before a bit of weakness at the end of the week. Oats also broke out, crossing the 200-week moving average and reaching its highest level since late 2015.

Corn is also right at the breakout level, closing just above its 200-day moving average for the first time since June. Volume and volatility metrics both support further advance, so we may see the breakout completed next week. If so, we can look for 390 as the next target.

Currencies

The currency markets remain in a random two-way rotational phase and continue to correct against the primary trend, which continues to favour the dollar. The dollar index moved below the 50-day MA, but price remains well above its 200-day MA, and the trend is up. The RSI is flirting with bull market support at the 40 level.

The January effect that we have written about recently, where there is a strong tendency in the historical data for the Euro to make its high or low for the year in January, continues to point to the 1.0347 print on the 3rd of January as the low for the year. However, I remain unconvinced.

The recent corrective rally in EUR/USD has been on declining volume and volatility, which is characteristic of a correction and not a new trend. Price is finding resistance in the region of the 50-day MA and remains below the 38.2% retracement of the decline from the November 2016 spike high. That price level is 1.0751. Friday’s close was 1.0730. Based on the current technical picture displayed by the charts, I expect resistance will be found somewhere between the 38.2 and 50% (1.0868) retracement levels of that decline before the market turns lower once more. We shall see. Either way, there is currently no position in this market.

Interest rate futures

Interest rate futures found resistance as expected in the vicinity of the 50-day moving average, which was almost exactly to the 38.2% retracement of the decline from the November spike high. Having opened the week higher, interest rate futures traded lower throughout the week.

On the 30-Year T-Bond, price remains above the 50-month moving average as it has since July 2007. Currently, that long-term MA is at 147.20. Given that this MA has been the controlling MA for almost ten years, significant support can be expected in that area.

The trend remains down for the sector and price may yet turn lower and resume the downtrend in the next couple of weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 15 January 2017 – LS Trader

For the most part, the markets are undergoing a period of volatility, volume and price compression and are therefore consolidating ahead of the next trending campaign. The long-term trends all remain intact and are still up for stocks and the dollar, and mixed for commodities. Many commodities are showing some early bullish signs, and this is the asset class most likely to deliver a change of long-term trend.

Note that many markets are closed on Monday due to the Martin Luther King Jr. holiday in the US. This week also sees the ECB meet on Thursday and the US Presidential Inauguration on Friday.

Stocks

The S&P 500 failed to breakout to a new all-time high this week and has been moving sideways in a range since the middle of December. Volatility is undergoing compression, and price and volume are following suit.

There has also been significant volatility and price compression in the Dow, which has still been unable to hit the 20,000 level and remains in a very tight range. 19,999.63 remains the all-time high for the Dow.

The Nasdaq 100 is the exception. Having not reached the volatility extremes seen in the S&P 500 and the Dow, the Nasdaq 100 continues to grind higher with a slight increase in volatility. Price made a new all-time high on Friday of 5063.25

The first five trading days of the year early warning system, saw that period close up, which indicates an up year for stocks. We will continue to watch for the January effect in stocks, which says as goes January, so goes the rest of the year. In other words, a bullish January equals a bullish stock market for the year ahead, based on past data.

Commodities

As written above, several commodities are showing early bullish signs. Soybean Meal and Soybeans are of particular interest. Having tested a strong shelf of support, these markets have made a short-term breakout from a narrow trading range on above average volume and may complete upside breakouts and changes of the long-term trend this week.

Currencies

We’ve written recently about the January effect in EUR/USD, which states that there is a strong tendency, according to past data, for this pair to post either its high or low for the year during the month of January. The low of the month posted back on the 3rd was at 1.0374 (March futures). Friday’s close was 1.0668, almost 300 pips above the low.

The past two trading days have also seen the Euro test the 50-day moving average, which it has only closed above once since October last year.

The dollar index, which is the inverse of the Euro, has been undergoing volatility compression and mean reverting to fair value over the past two weeks and now appears to be looking for support. The long-term trend remains up for the dollar, so we may see a resumption of the uptrend soon, which would put pressure on the Euro.

Interest rate futures

Interest rate futures continue to trade in the vicinity of the 50-day moving average, and almost exactly to the 38.2% retracement of the decline from the November spike high. The trend remains down for the sector and price may yet turn lower and resume the downtrend in the next couple of weeks.

Good trading

Phil Seaton

Weekly Update 8 January 2017 – LS Trader

It’s been a wild start to the year, particularly in the currency markets, which have seen some large swings. The week has also seen stocks and interest rate futures make counter trend rallies from their recent lows and has seen the stock markets make new all-time highs.

Stocks

The S&P 500 managed a slight gain for the period of the Santa Claus rally, which spans the last five trading days of the year and the first two trading days of the new year. In that period, the market made a small increase from the close on the 21st December at 2260.5 to 2264.25 at the 4th January close (basis the S&P 500 March 2017 e-mini contract). The rally did continue on Friday and took the S&P 500 to a new all-time high of 2277 before closing at 2271.5, a new all-time closing high.

The Nasdaq 100 also posted a new all-time high and crossed the 5000 level for the first time, closing above the breakout level at 5004 (also basis the March 2017 e-min contract.

For those that watch financial TV and follow the media (two practices that are detrimental!), it has been impossible to avoid talk of the Dow and the 20,000 level. The Dow hit an all-time high of 19,999.63 on Friday, falling just short of the psychological round number. The number in and of itself is meaningless, but a close above that level may trigger some buy orders and see the market push higher.

Interestingly, the US debt clock is also about to hit another similar level, $20 trillion of debt and could so so around the time of Trump’s inauguration on the 20th of this month.

We will continue to watch for the January effect in stocks, which says as goes January, so goes the rest of the year. In other words, a bullish January equals a bullish stock market for the year ahead, based on past data.

There is also the first five trading days of the year early warning system, which works on the same basis. We will have to wait for the close on Monday so see whether that indicates an up or down year.

Commodities

The metals markets showed some strength this week, bringing an end to the downtrends in Gold and Silver, at least for now. Palladium had a hugely bullish week, rallying some 11.36% for the week. An upside breakout in Palladium could be due.

Currencies

We wrote last week about the January effect in EUR/USD, where there is a strong tendency for this market to post either its highest or lowest price of the year in January. We will continue to watch this one closely, as it is such a major FX market. The month began with a new multi-year low followed by a sharp reversal higher. Weakness was seen again on Friday, which turned the market lower from below the 50-day moving average. The long-term trend remains down.

Interest rate futures

Interest rate futures continued their recent counter-trend recovery and broke through resistance this week, bringing some very profitable downtrends to an end. The markets rallied up to the 50-day moving average, and almost exactly to the 38.2% retracement of the decline from the November spike high, found resistance and then turned lower again. The long-term trend for this sector remains down.

Good trading

Phil Seaton

LS Trader

Weekly Update 1 January 2017 – LS Trader

Due to the New Year’s Day holiday, this week’s update is an abbreviated version. We’d like to wish all our readers a very Happy and Prosperous New Year!

We’re still in the seasonal period of the Santa Claus rally, which, according to the data, and not the talking heads on TV, actually runs from the 22nd December this year (last five trading days of the year), through to the first two days in January, which will be Tuesday the 3rd and 4th.

The S&P 500 closed at 2260.5 on the 21st December and closed at 2236.25 on Friday 30th December. Therefore, we must see a rally by Wednesday’s close to at least 2260, or the Santa Rally will have failed this year. When the Santa Rally fails, the following year is often a bear market for stocks or a year where the markets move significantly lower before recovering. The saying on Wall Street is “If Santa Claus should fail to call, bear may come to broad and wall”. Let’s see what happens.

In addition to the Santa rally, we also have the January Barometer, which states that as goes January so goes the rest of the year in stocks. If stocks close up in January, the odds favour a stock rally for the year; if they end lower in January, the year is likely bearish.

There is also the January effect in EUR/USD, where there is a strong tendency for this market to post either its highest or lowest price of the year in January. Given that this is a key market and is largely impacted by the dollar, this will be an interesting pattern to monitor this month to see if it plays out. If it turns out that January is the high of the year in EUR/USD, we can expect this pair to go well below par before 2017 is up.

As ever, seasonalities are only tendencies based on patterns mined from market data. They do not always work, and some are much more reliable than others. It’s good to be aware of such patterns but far better to follow the trends in real-time and trade accordingly.

Good trading

Phil Seaton

LS Trader