Weekly Update 27 October 2014 – LS Trader

Both the dollar and stocks have moved higher over the past 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. Stocks continue their recent recovery in sharp fashion. This coming week may be key as to whether they continue to rally to new highs or fail, as discussed below. Watch for the RSI as it approaches 60. If it breaks through 60 decisively, further rally would be likely.

Stocks

It’s been a second strong week for stocks, which have rallied sharply from the lows printed on the 15th October. It will be interesting to see if the RSI on the S&P 500 is able to clear 60, which is the level that markets in a downtrend typically find resistance. Currently the RSI is at 55.96. The rally from the 15th October has now retraced over 61.8% of the decline from the all time high at 2014.5 and is now approaching the 78.6% retracement, which stands at 1971.38. Typically when a market corrects much beyond that level it goes on to test the prior high. Time will tell.

The Nasdaq 100 is stronger still and having never dropped sufficiently to give a change of trend to down, remains in a long-term uptrend and will likely be the first to test its recent high should the recent stock market rallies continue.

Considerably weaker than U.S. stocks are the Nikkei and Dax, with the Dax being the weakest and likely the first to break to new lows on renewed weakness.

Commodities

After being in a downtrend for months, the grains sector is showing signs of life. Oats is the first market in the sector to give a change of trend to up although there was quite a nasty one-day reversal on Friday. Other markets in the sector, particularly soybean meal, have shown considerable strength near-term. Several markets have broken their downward sloping trendlines that have been intact from the start of the year. Soybean meal broke cleanly above the 60 level on the RSI, which is further evidence of renewed strength. However, the long-term trend still remains down.

Natural gas continues its decline and fell this week to its lowest level since January. We may see continued weakness over the coming weeks towards the low of the year on the basis of the back-adjusted continuous contract at 3.224.

Currencies

The dollar has risen against the majors this week but continues to consolidate below its recent highs. 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.

From last week on cable “we’ll look for the RSI to run into resistance between the 50-60 level.” The RSI peaked at 49.51 on Monday and cable headed lower through to Friday, where a small recovery was seen. The long-term trend is down and a break to new lows cannot be ruled out.

Interest rate futures

Interest rate futures have edged lower throughout the week and these markets have now fallen back to the proximity of support. The prior highs posted at the late August peak should now provide support if the trends are still good. These levels look likely to be tested in the coming days. If these support levels are broken it’s likely that the tops are in for the time being and that we will see a period of further weakness. The long-term trends however all remain intact for now.

Good trading

Phil Seaton

LS Trader

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