Weekly Update 1st February 2015 – LS Trader

The dollar rally continues as the dollar index rallies to its highest level since September 2003. The Dax has rallied to new highs in a move that is unconfirmed by other global stock indexes, which are all showing signs of weakness, and bonds have rallied to new highs for the current move. The big question however is whether the energy markets have finally bottomed following Friday’s sharp rally. More on that in the commodities section below.

Stocks

The Dax continues to be the runaway leader of the four global stock indices that we trade at LS Trader; indeed it’s the only one of the four that we have an open trade in at present. The week continued the way it had ended the prior week, with considerable strength. This led to a new all time high print at 10857.5 basis the March contract before some mostly sideways price action followed for the rest of the week (albeit choppy) before the week closed at 10695. The key level for the Dax will be the prior breakout resistance zone around 10150 and the Dax should be considered bullish above that level (prior resistance once broken becomes support if the trend is good). A move much below 10150 would suggest that a top was in for now and a period of weakness likely.

U.S. stocks are considerably less bullish and are in fact in a fairly precarious position. Most traders will be looking at the December and January lows and probably setting themselves up for short positions should those support levels be broken. With the long-term trend still being very much up, such a move may be premature and could result in a number of sell-stops being triggered before a sharp reversal wiping out the weak shorts. Considerable further weakness is required before a change of trend to down is confirmed. The first indication of that happening would be the RSI moving decisively below the bull market support level at 40. It currently sits at 42.27. A decisive break and close below the December low of 1961.5 would be the second indication. A third level of confirmation will be required for a trend change to down.

Commodities

The energy markets rallied sharply on Friday, finally bringing to an end three of the most profitable short trades for LS Trader in years. Heating oil, no leaded gas and Brent crude all rallied sufficiently for us to exit our short trades, banking huge profits in the process.

  • Brent crude short from 10638. Trade closed at 5250. 5388 points profit.
  • No leaded gas short from 23710. Trade closed at 14456. 9254 points profit.
  • Heating oil short from 23165. Trade closed at 16826. 6339 points profit.
  • Total of 20,981 points profit banked from three trades.

We still remain short crude oil, but probably not for much longer, but also currently have 4118 points profit on that position as well, and are also still short natural gas, which did not rally on Friday but instead dropped to new lows.

While Friday’s rally may have brought the trends to an end in the short-term, it remains to be seen as to whether the final bottom is in or not. The first thing to look for will be whether the RSI can decisively beak above the 60 level, or whether bear market resistance between 50 and 60 holds firm. If 60 does hold we may yet see new lows in this sector.

Currencies

The dollar rally continues and this week saw the dollar index come within pips of the 50% retracement of the large decline from the 2001 top basis the cash index. This is a very good indication of recent strength and who is to say that further rally to another popular retracement level, the 61.8% level will not follow over the coming months? Such a move would see the index print above the 100 level for the first time since September 2003. Sentiment though is still very bullish towards the dollar, so one wonders how long it will be before we see a correction. For now all the trends remain intact and in favour of the dollar.

Interest rate futures

Interest rate futures continued their recovery from the spike low on the 22nd January and rallied to new highs for the current move on Friday. The long-term trend remains up across the sector and the 30-year bond may continue to rally higher to test the all time high print of 153.34 from July 2012.

Good trading

Phil Seaton

LS Trader

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