Weekly Update 16 October 2016 – LS Trader

US stocks traded lower this week, and the dollar rallied against many of the majors. The dollar index broke out of its consolidation and we could be coming to the end of what has been mostly directionless trade in the current markets for much of the past 18 months.

Stocks

Stocks ended the week lower, having closed down for the second consecutive week. The S&P 500 has been trading very indecisively around its 100-day moving average.

The Nasdaq 100 broke short-term support and remains stronger than the S&P 500, and is still clearly in a long-term uptrend.

The Dax chart displays an almost total lack of trend as the market continues to trade mostly sideways, as it has for the past three months. Volatility has dropped to a level that suggests a breakout will follow soon. The odds currently favour that breakout being to the upside, based on the long-term trend and RSI, which remains in the bull range.

Commodities

The recovery in the energy markets has continued. The long-term trend is now up in four of the five markets in the sector, leaving only RBOB Gasoline in a downtrend. RBOB is, however, within the range of a breakout and change of trend.

Feeder Cattle continues to trend lower, this week falling to its lowest level since November 2012. Substantial selling volume currently supports further declines in this market, possibly down to the next support level which is around the 100 level.

Lean Hogs, also in the currently bearish cattle sector, had bounced higher this week but then reversed lower on Friday, keeping the downtrend intact.

Of potential interest in terms of a set-up is Soybean Oil. Recent trade has seen a short-term trend line hold, and price break out of a short-term wedge. A break of the August high will complete a change of long-term trend to up and further rally from there would break the neckline of a large inverted head and shoulders pattern which, if completed, would point to a measured target around the 45.00 area, a significant move.

Weakness in the metals markets could also play out in Copper, a market that has traded within a symmetrical triangle for almost all of 2016. Volatility is supportive of a breakout from this triangle soon, with the odds slightly favouring a downside breakout.

Currencies

The dollar index cleared resistance at the July high and has, potentially significantly, closed above that prior resistance level. If the trend is good, that level should now act as support and form a platform for further rally. The one negative for the index in the short-term is that volatility has increased to a fairly extreme level, which always makes a market prone to a swift reversal back to fair value, which is currently around 96.50.

Dollar strength has pushed the Euro lower down towards a major trend-defining support level which could be tested this week.

Interest rate futures

Interest rate futures moved lower again this week. The 30-Year T-Bond tested and broke its 200-day moving average as expected. With the RSI also below the 40-level, therefore in the bear range, a change of trend to down is looking increasingly likely and could be completed over the coming weeks.

Good trading

Phil Seaton

LS Trader

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