Weekly Update 2 November 2014 – LS Trader

This past week saw several big moves; new all time highs for the S&P 500, a new multi-year high for the Nasdaq, huge moves in the Nikkei and Yen, as well as a collapse to multi-year lows for gold and silver.

From last week: “The bullish uptrend for the dollar remains intact and up across the board and a break to new highs for the dollar index and the dollar against several of the majors looks likely in the coming days. This coming week may be key as to whether stocks continue to rally to new highs. Watch for the RSI as it approaches 60. If it breaks through 60 decisively, further rally would be likely.”

Stocks

The RSI on the S&P 500 and Nasdaq 100 both moved above 60 as both markets moved to new highs. In the case of the S&P 500, this rally completed an incredible reversal from the low printed on the 15th October which has seen the S&P 500 rally over 200 points from1813 to Friday’s new all time high of 2016.75 basis the December e-mini contract.

In last week’s update we noted that the rally from the 15th October had retraced over 61.8% of the decline from the all time high at 2014.5 and that it was approaching the 78.6% retracement level and stated that typically when a market corrects much beyond 78.6% level it goes on to test the prior high. This turned out to be correct. We also wrote that The Nasdaq 100 was the strongest of the stock indices that we trade at LS Trader and that it would likely be the first to test its recent high. This also turned out to be correct.

The biggest move in our 4 stock indices however came from the Nikkei which shot higher as the BOJ made a surprise announcement, which also had the impact of severely weakening the Yen. Long-term readers will be aware that the Nikkei and Yen are very highly inversely correlated. This move however was caught by the LS Trader system and generated a quick 604 points profit for the system, and we still remain in the trade. This is the highest level in the Nikkei since 2007.

Commodities

The commodities markets brought us several large moves over the past week, not least of which was a large and swift move in rough rice which enabled us to take advantage of one of our proprietary rules to bank a quick 879 points in the space of just three hours on Tuesday morning. Rice broke sharply early on Tuesday morning, falling some 9.21% before bottoming out. Our “Take windfall profits” rule was triggered as conditions reached certain parameters that suggested a reversal was likely to be as swift and forceful as the decline, which turned out to be spot on. We exited the trade near the low of the move and then sat back as the market retraced the decline over the following 24 hours.

Gold and silver both collapsed through critical support levels to resume their respective long-term downtrends having both fallen to levels not seen in over 4 years.

We also wrote last week that the soybean markets were showing signs of life, this also turned out to be spot on as soybean meal rallied 15.3% in the space of 4 days. Soybeans also rallied but not quite to the same extent. A change of trend to up for these markets is coming within range, but for now the trend remains down.

Currencies

From last week: “The RSI on the dollar index found support just below 50 and therefore remains in the bull range. The long-term trend is still up and new highs above 86.87 look likely. Such a move would also see the Euro fall below its early October low and go below 1.25 for the first time since August 2012.” Both moves came to pass as expected but as yet there has been no follow through. This may follow in the coming days as the dollar looks set to test key levels and possibly breakout against a few more of the major currencies.

Interest rate futures

Continued weakness has been seen in the interest rate futures sector where the uptrends have all come to an end, at least for the near-term, with the exception of the 3 month Eurodollar. Currently the long-term trends are still up for the entire sector.

Good trading

Phil Seaton

LS Trader

 

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