Weekly Update 13th July 2014 – LS Trader

A handful of commodities markets completed long-term trend changes to down as we suggested may happen in last week’s update. As yet we have not seen a change of trend for the dollar index and the Euro, both of which would be significant and would likely pressure commodities further. Further trend changes, based on LS Trader’s proprietary trend indicator, particularly in the commodities markets may follow.

Stocks

The S&P 500 came within a point of new all time highs on Monday, but was unable to push through end edged lower for much of the week, with a small recovery seen late in the week. A push to new highs cannot be ruled out and the possibility of a test of 2000 remains, although with the unconvincing price action seen this week it’s far from certain that the S&P will reach 2000, let alone clear that level.

The Nasdaq 100 came within a couple of points of making new highs for the current move but then backed off having failed to clear resistance. This led to some weakness mid-week before a recovery on Thursday and Friday. New highs remain within touching distance.

The Dax feel just short of breaking out to new highs and the failure to do so led to a sharp decline for the week, which also took out short-term support and saw the Dax make its lowest print since late May. For now the trend remains up but the extent of current weakness may indicate that the top is in, and that following a likely bounce, weakness may resume.

The Nikkei fell for the week but remains closely correlated with USDS/JPY, which continues to hold above critical support. Should support on USD/JPY hold, the Nikkei may well resume the uptrend in the coming weeks.

We wrote last week that an uptick in volatility was well overdue, and that although the move higher this week in the VIX (Volatility Index) was the largest in several weeks, the index still remains near multi-year lows. It is possible that the low may be in for the index but this depends very much on whether the S&P 500 makes new all time highs.

Commodities

We finally exited Feeder cattle, which has been the best trade of the year to date for the LS Trader system. We’d been long since 13th February, so the trade lasted just a couple of days under 5 months. The trade banked some 3127 spread betting points. The trend remains up for feeder cattle and it’s possible that the market will break to new highs once again following the completion of the current correction.

Gold has picked up in volatility terms since the breakout higher last week. This week saw some early weakness but then a break to new highs for the current move followed. Further strength towards 1393 may follow, basis the August contract. Silver has also risen along with gold, suggesting that the move may be for real since there is no divergence between the two precious metals. A possible target for silver is the high for the year to date, a break of which would be a bullish event.

Last week we wrote about the collapse of the soybeans sector and this continued this week, leading to a change of long-term trend to down. The rest of the grains sector has also displayed considerable weakness, with corn accelerating to the downside, and wheat also printing new lows for the current move. Oats is the last market in the sector that is still in a long-term uptrend, but that could change as soon as this week if the grains collapse continues.

Currencies

The currency markets remain fairly muted and tight sideways price action is the norm at present. Several of the major currencies continue to trade within very narrow bands on the basis of historical volatility. The one exception was a comparatively large bounce higher for the dollar against the Canadian dollar seen on Friday. Will this be the start of an increase in volatility in the currency markets? Time will tell, but a determining factor will likely be whether the dollar index and Euro breakout from their current trading ranges.

Interest rate futures

Interest rate futures rallied this week, with the 30-year T-bond uptrend remaining intact and possibly targeting the late May high. The shorter-term markets in the sector are also rising along with the long bond, but whether there is sufficient strength for the 5 & 10 year T-notes to breakout to the upside remains to be seen.

Good trading

Phil Seaton

LS Trader

 

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