Weekly Update 20 November 2016 – LS Trader

The S&P 500 printed a slight new all-time high this week as the stock markets complete the recovery from the initial steep sell-off on election night which was well overdone. Interest rate futures continue to crash, as yields rose the fastest over the past two weeks of any two week period in history. The anticipation and pricing in of higher US interest rates is extremely bullish for the dollar, hence the dollar’s rise to 13 1/2 year highs, as measured by the dollar index.

Stocks

The S&P 500 completed its recovery rally to print a new all-time high again this week. However, as has been the case for a long time, the rally is on very low volume, which is not supportive of further advances, although that can change with a decisive breakout. The trend remains up.

The Nasdaq 100 has also risen this week, moving back above its 50-day moving average, but this advance is also on low volume, and the divergence between the S&P 500 and Nasdaq 100 is not bullish.

The Dax continues to consolidate below its recent lows and continues to trade within a 4-month long box range which spans approximately 800 points (from 10,013 to 10,826). Classical charting techniques give a target of around 11,600 in the event of a successful breakout by adding the height of the range to the breakout level. Whether the breakout completes remains to be seen, but the trend remains up, as it has since early June.

The Nikkei has a strong week, moving above the 18,000 level and reaching its highest level since January. The trend remains up, and the RSI is in the bull range. Here, too, volume is not supportive of an extended advance.

Commodities

Silver completed a change of trend to down as expected, as both Gold and Silver continue to weaken. Gold has fallen to its lowest level since February and is doing so on substantial volume. Silver fell to its lowest level since June.

Currencies

It’s been a great week for the dollar, which rose to 13 1/2 year highs on the basis of the dollar index. The long-term trend is now shifting in favour of the dollar against all the majors, with the last two currencies still in uptrend, the Australian and New Zealand dollars, on course to complete a change of trend this week.

Interest rate futures

From last week on interest rate futures: “The selling was accompanied by 300% volume readings, so a major macro shift has been seen, and we may see further weakness over the coming weeks and months.”

Interest rate futures continue to decline, supported by heavy volume. The current declines are mature on the basis of the volatility cycle, so there may be some form of mean reversion ahead. However, the macro shift to bearish is fully in place, and interest rate futures should continue to fall to much lower levels over the coming months and years as rates rise in the US. There will be the inevitable corrections along the way, but the long-term trend is now down.

Good trading

Phil Seaton

LS Trader

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