Weekly Update 10 August 2014 – LS Trader

Most markets had been trading in the direction of their respective trends until we got a sharp one-day reversal on Friday. This reversal was seen in several markets and sectors, including stocks, currencies and interest rate futures. Such one-day moves do not reverse the prior trend, but can be indicative of a short-term reversal that may last a few days before the prior trend resumes.

The long-term trends still remain intact with the trends being up for stocks (exception being the Dax), up for interest rate futures, mixed for currencies and mostly down for commodities.

Stocks

From last week on the S&P 500 “The RSI has fallen below the key 40 support level, so basis the RSI the trend is now down, but as yet not confirmed by price action, as further weakness is still required for a change of long-term trend.” The S&P 500 drifted lower throughout the week until the reversal on Friday, which resulted in the S&P 500 closing up by a few points for the week. The long-term trend remains up, but short-term is still under pressure.

From last week on the Dax: “Key support was taken out and the RSI moved decisively into bear territory, ending the week at 28. The long-term trend is still up but that may change soon as the market looks set for a test of critical support in the coming weeks.” The Dax did continue lower sufficiently to complete a change of trend to down. The Dax is by far the weakest of the 4 stock indices that we trade at LS Trader, and has shed some 1153 points from the all time high printed on the 20th June. The trend is now down but we’d like to see a move back below the prior support level early next week for an accelerated move lower, otherwise a short-term bounce may be seen.

The VIX rose to its highest level since April on Friday but was unable to hold on to the gains and closed the week flat. This reversal occurred in synch with Friday’s stock rally as the VIX and stocks are inversely correlated.

Commodities

Orange juice is not a market that we cover very often in the LS Trader weekly update, but there is currently a nice move to the downside underway. The market bounced the week before last from a support level that has held for all of 2014, but this last week has seen the corrective move end and the market has dropped back to the prior support level. This has OJ at an interesting juncture between recent lows and last week’s highs. If the trend is good, last week’s highs should provide resistance and support levels should be decisively broken. If they are, we can look for further downside action towards the 120 area over the coming months.

Currencies

The Euro declined to within range of our downside target at $1.3293, but did not quite fall that far before a bounce higher was seen. The bounce has broken the short-term trendline and puts the trend under pressure in the near term, but longer-term the downtrend remains intact and we should eventually see $1.3293 and ultimately considerably lower levels over the coming months.

Last week on the dollar index we wrote: “The trend is still up and the correction should ideally end above 81.00 where prior resistance should now become support.” The dollar index, which moves inversely to the Euro, did make new highs for the current move but then pulled back on Friday, and may head lower for a possible test of support over the coming days. The long-term trend for the dollar index remains up, and the trend for the Euro remains down.

Interest rate futures

From last week “The 5 & 10 year T-Notes saw similar midweek weakness followed by strength on Friday to complete morning star bullish reversal patterns.” Following the morning star patterns, both of these markets rallied sharply, with the 10 year note breaking to new highs, but then put in a sharp one-day reversal on Friday. The 5-year T note failed to breakout, so there is non-confirmation of the breakout of the longer-term markets. Price action early next week will be important as the 30 year bond ideally needs to hold above prior resistance, which should now act as support if the trend is good, and the 10 year note needs to regain that support level quickly.

Good trading

Phil Seaton

LS Trader

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