Weekly Update 16th February 2014 – LS Trader

For the past couple of weeks we have been suggesting that the recent decline in stocks was a corrective move in a larger uptrend and price again has again confirmed this. Stocks advanced again and the dollar declined, as is the norm with the inverse relationship between the two.

The week ahead will be a shortened trading week as the U.S. markets are closed on Monday due to Presidents’ Day.

Stocks

From last week: “Based on the size of Friday’s up move, further strength looks likely this coming week and we may yet see a test of the recent highs, not just in the Nasdaq 100 but also in the other major stock indices.” Strength continued this week sufficiently for the Nasdaq 100 to breakout to new multi-year highs. S&P 500 strength also continued and the retracement of the recent corrective sell-off is now very deep, so much so that a test of the all time highs posted at the end of 2013 look to be tested this week. Very strong resistance can be expected should the S&P 500 reach the 1845 area basis the March e-mini contract.

The Dax also had a strong week, continuing the rally that began at the prior week’s low. Since that low was posted, the Dax has rallied some 642.5 points, and as with the S&P 500, looks set to test recent all time highs in the coming days.

By far the weakest of the stock indices we trade at LS Trader is the Nikkei. Last week we suggested that the recovery rally may extend higher to approximately the 38.2% retracement level of the prior decline at 14895 before turning lower again. That level was reached and slightly exceeded before weakness returned. The Nikkei is the only index that is close to testing major trend defining support.

Commodities

Gold and silver have put in strong counter-trend rallies, which in the case of gold has brought a change of long-term trend to up within range. Based on LS Trader’s proprietary trend analysis, the long-term trend for gold has been down since the 15th February, almost exactly 1 year ago to the day. Silver’s long-term trend actually turned lower 4 days after gold and here to it still slightly lags gold’s advance. Should strength continue, a change of trend to up could be completed soon.

There is some evidence that the energy markets may be getting set for upside breakouts having remained range bound for years. This week saw heating oil rally to its highest level in almost a year. Should this rally continue, major resistance will be the key at the August 2011 high at 33116 basis the continuous contract.

The March Natural gas contract gapped lower at the start of the week but then rallied strongly from Monday’s low. The previous week’s high at 5.737 is the next target, and should that be exceeded next technical resistance level does not appear until 6.990.

Currencies

The dollar lost ground this week across the board and the dollar index fell to its lowest level in 6 weeks. The long-term trend still remains down for the dollar index and we may see further weakness towards the next level of key support.

The British pound had a very bullish week, breaking to new highs for the current move and indeed its highest level since 2009. The next target is $1.6882 basis the continuous contract. The kiwi also had a good week, rallying for the second consecutive week and looking set to test key resistance in the days ahead.

Interest rate futures

Interest rate futures ended the week lower with the exception of the Euribor, which ended flat. The long-term trend for interest rate futures is up in 4 of the 5 markets that we trade at LS Trader, with only the 10-year T note still in a long term downtrend. However, all of the markets remain near the higher end of the recent range so strength may yet return.

Good trading

Phil Seaton

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