Weekly Update 1 October 2017 – LS Trader

The S&P 500 made a new all-time high yet again this week as the bull market in global stocks continues. Other indexes lag behind the S&P 500, but all are making progress back towards a test of their respective recent highs.

The dollar continues to show signs of a reversal in the making, at least in the short-term. The commitments of traders (COT) data, discussed within the currencies section shows an interesting multi-year development.

Stocks

The S&P 500 continues to lead the way for the stock indexes that we trade at LS Trader. In last week’s update, we mentioned key support at change of polarity support from the prior highs and that support level held on Monday. The market rallied through the rest of the week and made a new all-time high and new all-time closing high on Friday. The RSI reach 70.96 on Friday, its highest level since March.

The Dax had a strong week with the RSI (weekly) breaking back above the 60 level. All-time highs are in range and a change of trend and break out to new highs could be seen this week.

The Nasdaq 100 dropped below its 50-day MA on Monday but recovered that level by Wednesday and may now have another go at all-time highs. The RSI remained above the 40 level, which is bull market support, during the recent weakness, and the long-term trend remains up.

Commodities

Commodities markets have seen mostly weakness this week, with energies and metals seeing considerable declines. There have been few exceptions. One of these is Lumber, which rallied above 400 for the first time since April. Friday’s candle showed some weakness but if the market can shrug that off early next week we may see a test of the April 2017 high.

Gold and Silver both continue to decline. Silver, in particular, looks weak, and having been the sole metals market not to be in a long-term up trend at present is the most likely to break out to the downside.

Currencies

Following the exit of the Euro and Dollar Index positions, only the British Pound remains as an open trade. Even the Pound, which is currently the strongest currency against the dollar in terms of near-term trend has seen weakness this week, but so far support continues to hold.

The dollar index reached its highest level since the middle of August. The dollar index had fallen sharply this year, having declined from 103.81 back in January, to the September low at 90.99, so the bounce has been expected. The rally this week took the index back above its 50-day MA for the first time since April.

This turnaround in the dollar has been expected for a couple of weeks, and we may see further gains for the dollar over the coming weeks. The Commitments of Traders Data (COT) data shows that commercials are now net long the dollar index for the first time since March 2014.

One thing that we have noted in recent weeks is the near-record commercial short position in the Euro on the COT data. Commercials are the most short that they have been since 2007. Often trends will resolve in the direction of the commercials, but not always. In fact, the last time commercials were this short the Euro rallied from around 1.37 to 1.60. This week’s breach of support broke the neckline on a small head and shoulders pattern, which adds more fuel to the short-term view of Euro weakness and dollar strength, both of which are moves counter to the long-term trend.

Interest rate futures

The 3-month Eurodollar broke support and completed a change of trend to down as we anticipated in last week’s update. The 3-month Eurodollar is the second of the interest rate futures markets to enter a long-term downtrend, joining the UK Long Gilt. The remaining three US interest rate futures markets that we trade at LS Trader remain in long-term up trends for now, but all have seen persistent weakness since the first week of September.

Good trading

Phil Seaton

LS Trader

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