Weekly Update 11 December 2016 – LS Trader

The S&P 500 rose to new all-time highs in what was a fairly volatile week in stocks and currencies. The week ahead sees the two-day FOMC meeting begin on Tuesday, where the Fed have long been expected to raise US interest rates, the anticipation of which has likely been a driver of the recent dollar rally. We may see some heightened volatility around the time of the rate announcement on Wednesday.

Stocks

The S&P 500 briefly dipped below the change of polarity support level that we wrote about in last week’s update (2184), before forming a sharp reversal higher. The market closed higher each day of the week, making three new all-time highs in the process. For once, volume is above average levels, and volatility is in trend mode. The RSI has also, at 77.19, reached its highest level since February 2012, and there is no bearish divergence. The weight of the evidence suggests that prices will continue to head higher for now, but there is little doubt that this trend is mature. How much further upside there is remains to be seen.

The Nasdaq 100 continues to lag the S&P 500 but is now in range of testing its own all-time highs. Volatility is in the breakout phase, and volume is starting to increase, so we may see a breakout this week.

The Dow 30, which is not a market we trade but is a market of interest, is within reach of the 20,000 level that has been talked about for years. Friday’s close basis March E-mini futures was 19,711, just shy of 300 points below the psychological round number.

The Nikkei is in strong trend mode and has this week reached its highest level in almost a year. The psychological round number level of 20,000, just like the Dow, is a possible future target. Regarding structural price targets, the November 2015 high at 20,060 is a possible target.

This Friday is triple witching week.

Commodities

The energy markets fell just short of breaking out to resume the long-term uptrend. Prices may, however, breakout this week.

Gold fell to its lowest level since January and remains in a long-term downtrend. This week’s new lows were once again unconfirmed by Silver, so Gold may still mean revert to fair value, currently at $1197.

London Cocoa, which is not a market that we write about often, continues lower in a waterfall decline. This trade has been extremely profitable for the LS Trader system in a very short period. The downtrend is parabolic, with 12 consecutive daily lower closes. This has the move overextended in price and volatility and is, therefore, subject to some sort of correction higher. That does not mean that the market cannot move lower still, but the risk of a reversal increases on a daily basis.

Currencies

The dollar index did pull back to fair value as expected, and briefly broke support before strength returned. Thursday’s advance was accompanied by a 200% volume day, so we may see the recent high tested again this week.

The Euro had a wild week following a decline to slight new lows followed by a sharp reversal higher. Weakness then returned, and the market has fallen back towards the lows of the box range that has been in place since early 2015. As before, there is a strong zone of support that includes the 2015 double bottom between 1.0473 and 1.0490.

Interest rate futures

Interest rate futures fell to new lows for the current move once again. The recent corrective price action has relieved the volatility excess and leaves room for further declines.

Good trading

Phil Seaton

LS Trader

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