Stocks put in a huge recovery rally that resulted in the S&P 500 printing a new all time high late on Friday. The other stock indices also rallied but did not breakout to new highs. The dollar had a very mixed week that initially continued with weakness that began the prior week but resulted in a breakout to new highs for the dollar index.
In spite of a few choppy moves, the LS Trader system has risen to new equity highs for the year and also new all time highs for equity since our data began back in 1983.
From last week on the S&P 500 “the extent of the collapse and the strong seasonal bullish tendencies as we enter that last couple of weeks of the year would suggest a possible rally to retrace some of last week’s declines.” Seasonal tendencies came to the fore and a huge rally was seen in the S&P 500 which led to a new all time high print on Friday. The breakout in the S&P has so far been unconfirmed by the RSI, which interestingly halted right at the 60 level on Friday. A move above last week’s all time high with a clear move above 60 would suggest further strength in line with the strong seasonals and Santa Claus rally.
Historically the Santa Claus rally runs for the last 5 trading days of the year through to the first 2 trading days of the New Year, so in this instance that would begin on Tuesday. Should we see the Santa rally this year we would see further all time high prints for the S&P 500 and likely upside breakouts in the other 3 indices we trade at LS Trader, namely the Nasdaq 100, Dax and Nikkei 225.
The energy collapse continued this week as the energy markets fell to new multi-year lows once again. Crude oil printed a low at $53.94 before rallying on Friday but still ended the week lower. Brent crude dropped below $60 for the first time in over 4 years. Heating oil dropped to its lowest level since July 2009 and no leaded gas to its lowest level since early 2011.
Natural gas dropped below a key support level to fall to its lowest level since January and may fall further to test the 3.000 level over the coming weeks. This week saw an 8.72% drop for gas in what had previously been the strongest energy market in the complex!
As before, these markets continue to be extremely profitable for the LS Trader system and we are, being a trend following system, naturally short all 5 of the above markets and are currently showing huge profits on each trade individually and on the sector as a whole. Profits from these energy trades have had a considerable positive impact on LS Trader’s excellent performance year to date.
The currency markets have been extremely active this past week. Weakness was seen early in the week but a strong dollar recover followed which took the dollar index, USD/CHF and USD/CAD to new highs for the current move and saw the Euro break to new lows since August 2012, and the Aussie drop to its lowest level since May 2010, just pips above our long-term 8050 target. Whether there is sufficient dollar strength left to take the dollar to new highs against the remaining currencies remains to be seen. Either way, the long-term trend is definitely still bullish and as we have mentioned several times previously, will remain so for the foreseeable future in spite of the inevitable corrections along the way.
Interest rate futures
Interest rate futures rallied, and in the case of the long bond tested the October high before falling back sharply. The long bond remains the most bullish of the U.S. sector but all markets are currently still in a long-term uptrend and the RSI is also still in the bull range.