Weekly Update 19 January 2014 – LS Trader

The past week saw stocks break lower early in the week but then saw a subsequent recovery. The Nasdaq 100 rose to a new high for the current move but the S&P 500 narrowly failed to make a new all time high. Both indices ended the week higher. The dollar also ended the week higher with gains across the board. The long-term trends in each of the sectors remain unchanged.

The week ahead is a shortened trading week due to the U.S. holiday for Martin Luther Kind Jr. Day on Monday, which sees U.S. markets closed to observe the holiday.

Stocks

The S&P 500 fell just shy of making new all time highs but still remains close to its highs and may yet breakout. As has been the case for much of the advance from the October lows, once a breakout to new highs occurs, there is no overhead resistance so there is always the possibility of the rally continuing further. Currently a breakout to new highs may open the door to further strength towards 1900.

The Nasdaq 100 dropped below 3500 for the first time since before Christmas, but then put in a powerful reversal that began with a large bullish engulfing pattern. The strength of this move had sufficient momentum behind it to take the market to new multi-year highs, before a small pullback into Friday’s close. What happens next will likely be dependent on whether the S&P 500 breaks out to new highs or fails at current levels.

The Dax has been the strongest of the 4 indices we trade at LS Trader recently, with the trend remaining intact from our entry last year. This week saw the Dax post new all time highs at 9799 basis the March contract.

The Nikkei did not fall as far as 15,000 but having fallen to 15,390 on Tuesday put in a strong reversal day and regained the 50 day moving average in the process. With correlation still running high between the Nikkei and USD/JPY, both markets may yet break to new highs.

Commodities

Cotton made a large bullish move, advancing 5.10% for the week and moving higher towards a change of trend to up. The trend has been down for cotton since October last year. This week’s move saw this soft commodity move above the 200 day moving average as well and may be poised for further advances.

Many commodities still remain in long-term downtrends, none more so than sugar and wheat. Sugar has continued to collapse since failing to move above 20 back in October last year. This week saw sugar decline for a 12th week in the last 13, and end the week lower by 2.25% to fall to 3 ½ year lows. There is plenty of room for lower prices ahead, with support a long way below current levels. Wheat has dropped for 7 straight weeks and is also at multi-year lows.

Currencies

The dollar has advanced against all the currency markets we trade at LS Trader, and was extremely active against the Aussie, where a failed upside breakout was followed by a break to new lows and a change of trend to down. The dollar is strongest still against the Canadian dollar and reached our 110 target this week before closing slightly lower.

The Euro fell through some additional short-term support levels and is now firmly below the 50 day moving average. Further weakness will be required for a change of trend to down, but such a move is now coming into range, as is the 200-day moving average, which is a realistic target at 13345.

The dollar index, which is an almost perfect inverse of the Euro, reached its highest level in 9 weeks. Further strength will be required for a change of trend to up but such a move does look as though it may be on the horizon. Both the 200 and 50 week moving averages are currently just above the 8200 level, which is a good target and possibly a resistance area.

Interest rate futures

It’s been a relatively quite week for interest rate futures, which have mostly gone sideways for the week. The long-term trend is still up for the 5 year notes and short-term interest futures, but remains down for the long bond and the 10-year T note.

Good trading

Phil Seaton

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