Weekly Update 14 December 2014 – LS Trader

Stocks finally ran out of steam as the S&P 500 failed to print a new all time high and a sharp decline followed. Global stock indices all took at hit as the uptrend is halted, at least for the time being. The dollar also moved lower against the majority of the major currencies whilst commodities, in particular the energy markets, continued their recent collapse, and bonds rallied.

Stocks

As mentioned above, the S&P 500 failed to print new all time highs and a sharp sell-off followed. The RSI collapsed and dropped through the key 40 support level which suggests that the top may be in for now. However, the extent of the collapse and the strong seasonal bullish tendencies as we enter that last couple of weeks of the year would suggest a possible rally to retrace some of last week’s declines. The long-term trend is up and considerable further weakness will be required before that changes.

From last week on the Nasdaq 100 “3 doji patterns have been seen consecutively on the 100’s daily chart, which indicates a loss of upside momentum, and state of almost total indecision in the near-term as the Nasdaq consolidates just below recent multi-year highs.” There were signs that the Nasdaq 100 could have been forming a top as mentioned in last week’s update but until this week there had been no confirming price action. That has now changed and the uptrend is over for now. The Nasdaq has however held up better than the S&P 500 and the RSI is still in the bull range, holding above 40.

The Dax and the Nikkei also sold off as their respective uptrends also came to an end for the time being. For now the long-term uptrends are all still intact for all 4 of the stock indices that we trade at LS Trader.

This week sees the 2-day FOMC meeting begin on Tuesday and also triple witching on Friday.

Commodities

The energy markets have continued their recent sharp sell-off as all 5 of the energy markets that we trade at LS Trader fell to new lows for the current move, which with the exception of natural gas are all new multi-year lows.

The oil markets are now down more than 40% since June and naturally since LS Trader is a trend following system we have caught the majority of the moves, in what has so far delivered the biggest winning trades of the year. In terms of profit, crude oil is the most profitable trade so far this year but Brent crude is the largest winner to date in terms of multiples of initial risk and currently stands at just over 14 to 1 on initial risk. The 4 big winning trades from this sector have so far generated 18,004 points profit and are still going.

The grains markets continue to recover following the collapse that was underway for much of the year to date. Wheat is already nicely on the rise and corn is on the cusp of an upside breakout and a change of trend to up.

Currencies

The dollar ended the week lower against all the majors with the exception of 2 of the commodity based currencies, the Australian and Canadian dollars. The dollar had reached new extremes on Monday against all the majors but then went through a spell of weakness that lasted much of the week. The long-term trends still favour the dollar across the board and it’s really a matter now of whether these corrections continue and if they do how long for before the dollar bull market resumes. The longer-term picture still points towards a higher dollar but as we have mentioned before, there will be some corrections along the way.

Interest rate futures

Interest rate futures rallied throughout the week and the long bond is within range of testing its October high. The RSI moved back above 60 and closed the week at a bullish 74.83, which suggests further strength near term. Whether there is sufficient momentum to take the long bond above the October high remains to be seen. The only negative for the long bond is that sentiment is reaching a bullish extreme at 92% bulls. This does not rule out further gains but does indicate that many bulls are already involved in the move, so we may see a correction before new highs are seen. The long bond is by far the strongest of the longer-term interest rate futures markets followed by the 10-year note. The 5-year not is still range bound. The long-term trend remains up across the sector.

Good trading

Phil Seaton

LS Trader

 

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