Weekly Update 1st December 2013 – LS Trader

Stocks rose to new all time highs this week in what was a shortened trading week due to the U.S. Thanksgiving Holiday. The dollar has been mixed, showing weakness overall but managing to gain against the Yen, Canadian and Australian dollars. The long-term trends remain intact for the 4 sectors that we trade and are still up for stocks, down for the dollar, commodities and bonds.

Stocks

The Nasdaq 100 advanced 1.97% for the week and was the more bullish of the 2 U.S. stock indices we trade at LS Trader. The tech index now stands at its highest level since November 2000. The current rally that began nearly 5 years ago back in March 2009 has already retraced more than 50% of the 2000 bear market collapse and may head higher to retrace 61.8% of that decline at some stage in 2014, that level is at 3723 basis the back adjusted continuous contract, still some 236 points above Friday’s close.

Two of the other indexes we trade, the S&P 500 and the Dax are already at all time highs with the latter making the biggest move, a 2.09% weekly advance. Both indices posted new all time highs but the S&P500’s was marginal, only 0.15% up for the week.

The Nikkei continues to edge higher towards the May 22nd high, this week reaching its highest level since that high. A break above the May 22nd high would be bullish and would be the highest level printed by the index since December 2007. On the basis of intermarket relationships where a strong Nikkei equals a weak Yen, further Nikkei strength would point to continued yen weakness, and vice versa.

Commodities

Crude oil broke below key support this week, confirming a change of trend to down. Crude may continue to head lower to around the 85 handle over the coming weeks. The trend is mixed in the energy sector.

Another market that has completed a trend change this week is oats. Oats is part of a resurgent grains sector that has been heavily sold for much of the past year, but has rallied quite strongly in recent weeks, sufficient to change the trend to up.

From the grains sector the trend is also up for soybeans and soybean meal, both of which have resumed their respective trends this week and look poised to continue higher to test their highs of the year, posted back in September. The third market in the soybean complex is soybean oil. Historically these 3 markets are fairly well correlated but for the past couple of years that relationship has been broken with oil in an established downtrend.

Bean oil looks as though it may break lower once again soon. One thing of note is that the RSI has been unable to clear the 50/60 level since February. In downtrends the RSI usually finds resistance between 50 & 60 and this has been true for bean oil. Each time a correction higher has been seen, the RSI has stalled below the 60 level and the market has moved lower again. On that basis resistance should continue to be found around the 42 handle and the market then press lower again.

Currencies

The 8158 high on the dollar index remains the key level for upside strength and for the time being at least it looks as though that level will hold.  The index remains week, as does the dollar on balance, and the index may be poised to move lower once more, heading back towards the low of the year. The invert of this move will of course be a higher Euro, which may move higher to test the 13834 level soon. The dollar has however gained against the Australian dollar, Japanese Yen and Canadian dollar.

Interest rate futures

Interest rate futures were marginally higher this week but the trend remains down with the exception of the shorter-term interest rate futures.  The past week’s action has been mostly sideways, as has the action since the beginning of October. The 10 Year T-note did rise mid week to test the 200 day moving average but was unable to clear it. Another attempt at that may be seen this week.

Good trading

Phil Seaton

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