Weekly Update 18 January 2015 – LS Trader

<p>The story this week has been all about the Swiss Franc and the actions of the SNB, which shocked the markets. This led to an unprecedented move in terms of price and time duration, which was literally 10 minutes.<br />
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That aside, the dollar rose to new highs against several of the majors including reaching new highs for the current move in the dollar index. Stocks have been mixed, as have commodities. Interest rate futures were higher.<br />
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<strong><span style="text-decoration: underline;">Stocks</span></strong><br />
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The Dax was the strongest of the stock indices that we trade at <span style="text-decoration: underline;">LS Trader</span> this week; easily breaking through prior resistance to print a new all time high at 10316 on Friday basis the March contract. This was the culmination of a 2-day rally that began at Thursday&rsquo;s low, where a large rally began that left a very long lower shadow on the daily chart. Ideally we will see the prior resistance level hold and particularly the 10,000 psychological level hold to enable further rally.<br />
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The S&amp;P 500 fell early during the week but appears to have found support on Friday just above medium-term price support and the 40 bull market support level on the RSI. Friday saw a large bullish engulfing pattern print on the daily chart and the uptrend remains intact for now. A breach of 40 on the RSI and a print below the December low may lead to significantly lower levels.<br />
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<strong><span style="text-decoration: underline;">Commodities</span></strong><br />
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The first signs that the energy markets may be bottoming was seen this week with natural gas bouncing sharply higher off the lows on Tuesday with continuation on Wednesday. This large 2-day rally led to us exiting short trades in this market, but we remain short the other 4 markets in the sector, each of which remain very much in downtrends in spite of some strength seen this week.<br />
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Gold rallied this week making a strong move in terms of price and RSI. Thursday&rsquo;s strong rally took the market through R1 and the rally continued on Friday, possibly en route to a change of trend to up in the coming days. As ever, the RSI led the way, breaking through the 60 bear market resistance level on Monday and rising to 71.77 by Friday&rsquo;s close. The RSI is now in the bull range and price needs to follow to confirm a change of trend to up.<br />
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Silver also rallied similarly to gold, but not quite to the same extent. The market closed just below R1 but the RSI has moved above the 60 level, reaching 66. This suggests that the bottom is in for the time being on both of the precious metals and that we may be due for a rally that may last several weeks, possibly months.<br />
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In last week&rsquo;s update we wrote the following on copper: &ldquo;Copper of course is known as a good barometer for the economy, hence its nickname &ldquo;Dr Copper&rdquo;, so a weak copper market does not bode well for the economy, which suggests that global economies are much weaker than most think. There is plenty of room for lower copper prices as structural support is at much lower levels.&rdquo; Copper dropped sharply early in the week, making its lowest print since July 2009 on Wednesday before a decent bounce was seen on Thursday and Friday.<br />
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<strong><span style="text-decoration: underline;">Currencies</span></strong><br />
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The only currency story really was the move in the Swiss franc that basically saw a near 30% move in a matter of minutes following a shock move by the SNB. Incredibly the price action on Thursday had at one stage intraday engulfed all of the price action since August 2011! What happens now in this currency over the next few months remains to be seen. One thing however is clear, the SNB clearly don&rsquo;t want to hold on to their peg and was likely concerned about likely QE in Europe, which may lead to an even weaker Euro. The problem however was due to them putting the peg there in the first place, which was the mistake. Ultimately markets are bigger than central banks, and will end up where they want to go irrespective of central bank interventions, which can only be temporary.<br />
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<strong><span style="text-decoration: underline;">Interest rate futures</span></strong><br />
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From last week on the long bond &ldquo;Due to change of polarity where prior resistance becomes support, this level held (prior resistance) and the market remains very bullish above that level. Indeed if that support level holds, we will likely see further rally to new highs.&rdquo; The support level has held, indeed it was not even tested this week and the 30-year T Bond rallied to new highs as expected, before coming off somewhat on Friday. The trend remains up and that support level remains key.<br />
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Shorter-term interest rate futures were also higher, but all showed some weakness on Friday, returning to the prior breakout level. The 5 Year T-note made the largest reversal and broke below the breakout level, which should have in theory held, so a swift recovery will be required next week or the trend will be under considerable pressure.<br />
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Good trading<br />
<br />
Phil Seaton</p>

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