Weekly Update 12 April 2015 – LS Trader

The long-term trends still for the most part remain intact. The dollar bull market is still alive, and new breakouts for the dollar index and Euro could be seen this week. The British pound has this week fallen to a near 5 year low against the dollar and may yet have further to run. U.S. stocks have rallied this week and are back within range of their recent highs, but continue to lag other global indexes, of which the Dax is still the leader. Commodities remain mixed, but for the most part remain in long-term downtrends, as they have for quite a long time now.

Stocks

U.S. stocks rallied this week after the S&P 500 continues to find support at the key level around 2030. The RSI is continues to hold above 40. We wrote last week; “The long-term trend remains up and the focus will remain on higher prices as long as those two levels hold.” Both of those levels did hold and the RSI rose to 57.96, therefore remaining in the bull range. A move above 60 on the RSI would suggest that a test of all time highs would once again be on the cards. Should that happen, a breakout for the Nasdaq 100 might not be too far away either.

We wrote last week that April is a strong month on a seasonal basis, and in fact April is the best month for the Dow, dating back to 1950. It is also the second strongest month of the year for the S&P 500 and the fourth best for the Nasdaq 100 dating back to 1971.

The Nikkei rallied to new highs, finally reaching and exceeding the 20,000 level that we have been writing about for the past few weeks. This new breakout led to the LS Trader system going long the Japanese index, to add to our existing long position in the still bullish German Dax. Last week we wrote that with the RSI at 59.67 on the Dax, that the market remained bullish. This is still the case this week, and the RSI is now higher still at 68.95 in spite of a lower close on Friday.

Commodities

Weakness in the grains markets is ongoing. Soybeans this week turned down right at resistance and continued down to its lowest level this year. Soybean meal was also bearish, breaking below a key shelf of support that has held since October last year. This move, which was a trend-changing breakout, opens the door to potentially further declines, possibly as low as the 265 handle. The move to the downside was confirmed by a shift to the bear range on the RSI, with a move below 40. Some of the other grains markets may follow suit this week.

Natural gas, which is currently the weakest of the energy markets, broke to new lows for the current move, and now stands at its lowest level since mid-2012, with further downside potential ahead.

Currencies

We’ve been writing in recent weeks that the long-term dollar bull market was still intact and that recent weakness was just a corrective move in a larger uptrend. We said that we would be maintaining that view as long as the RSI held above 40 on the dollar index and for as long as the long-term uptrend remained up according to our proprietary indicators. Both continue to hold, so we remain bullish on the dollar until we see sufficient price evidence to the contrary.

It is possible that we will see a breakout to new highs for the dollar index this week, as well as new lows for the Euro. It’s worth noting that even with the recent Euro rally, the RSI has been unable to cross the 60 level, a level which it has remained beneath since May last year, such is the extent of recent weakness. The converse is true for the dollar index, where we have seen the RSI remain above 40 since July last year (the dollar index is a near perfect inversion of the Euro).

This past week has seen the British pound fall to new lows for the current move, which is also almost a new 5-year low for the Pound. Some of the other major currencies are also within range of resuming their long-term downtrends against the dollar.

Interest rate futures

In last week’s update we wrote that further gains for this sector would be dependent on the 10-year T note and 30-year T bond breaking to new highs, and said that there would be strong resistance at the prior highs. This turned out to be correct as these two markets were unable to breakout to new highs and instead turned lower, dragging the 5-year Note down with them.

Good trading

Phil Seaton

LS Trader

Leave a Reply

Your email address will not be published. Required fields are marked *