Weekly Update 22 June 2014 – LS Trader

Friday was triple witching day and saw quarterly stocks roll to the September contract. Friday also saw the S&P 500 and the Dax post new all time highs. The dollar continues to trade in very quiet fashion, with the trading range of the past four weeks on the dollar index contained within a 92 pip range! A volatility breakout looks imminent, particularly should the Euro break through trend defining support, not far below current price levels.

Stocks

As mentioned above, both the Dax and S&P 500 rose to new all time highs this week. The Nasdaq 100 reached its highest level since September 2000. Even the Nikkei 225, by far the weakest of the 4 stock indices that we trade at LS Trader has risen sufficiently to test key support, and may possibly breakout to the upside as early as Monday. The Nikkei’s rise from the May low has been sufficient for the RSI to make a range shift into bull market territory, suggesting further strength ahead.

The VIX fell to its lowest level in 7 years as complacency in the stock markets reaches incredible extremes. A sharp rise in volatility is well overdue.

Commodities

The energy sector has been strong once more, with Brent crude rising to its highest level since September last year. With the exception of natural gas, all the other markets in the sector ended the week higher.

Some large moves were also seen in the metals sector, where silver rallied sharply to reach its highest level since March, and gold its highest level since April. The long-term trend is still down for silver, but continued strength could see that change in the not too distant future. Gold, which narrowly held on to the long-term uptrend, also rose sharply, but was not quite as strong as silver. The RSI has completed a range shift to bull market territory, so a potential upside breakout beckons, with a test of $1393, the March high, the next target.

Feeder cattle posted a new all time high on Tuesday, but has backed off a bit since. The trend is still up but the RSI is rolling over, indicating a decline in momentum and a possible correction ahead. The long-term trend however will remain up for the foreseeable future. This has been an extremely profitable trade so far for the LS Trader system, and the trade remains in progress.

Currencies

The Pound rose through the $1.70 level as anticipated, reaching its highest level since August 2009 in the process. There is however divergence between Thursday’s high and the May high. However, this does not necessarily indicate a reversal, merely a decrease in momentum.

The dollar had quite a volatile week against the Canadian dollar, which saw a spike higher on Wednesday that failed to clear near-term resistance, followed by a break of critical support. The downside break took the dollar to its lowest level against the Canadian dollar since early January, and confirmed a change of trend to down in the process. The RSI fell to 28, which is bear market territory, but it can move lower still.

Interest rate futures

The 30-year T Bond and Euribor continue to hold above support, but not in a convincing manner. The 30-year T bond has a good shelf of support in a zone just below the recent lows and if the uptrend is good, this support zone should hold. The RSI does remain in the bull range and above the 40 support zone. A break of this support zone and the shelf of support on the price chart may lead to weakness back towards 131.

Good trading

Phil Seaton

LS Trader

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