Weekly Update 27th July 2014 – LS Trader

The Euro has fallen to new lows for the year and the dollar index came close to making an upside breakout, which may follow this week. Should the dollar index breakout and continue to rise, that may put some pressure on stocks around the time of the 2000 level being attempted on the S&P 500, as well as put further pressure on commodities, many of which are already in long-term downtrends. Volatility on the whole continues to rise in many markets, which bodes well for trading opportunities over the coming months.

Stocks

The S&P 500 posted new all time highs once again but pulled back on Friday. The psychological 2000 level remains in focus, but some weakness has been seen following Thursday’s new all time high. On a short-term basis we do have an evening star pattern, which is a bearish reversal pattern, suggesting further short-term weakness. The long-term trend however is still very much up.

From last week on the Dax: “The RSI continues to move back lower and may fall back below 40 in the coming days, which when accompanied by a break of support should point to lower prices in the near term.” The RSI fell just below 38 where a bounce higher was seen in both price and RSI. Weakness has subsequently followed and another test of key support looks likely this week.

Also from last week “The correlation between the Nikkei and USD/JPY remains intact, and both markets continue to hold above key support. The current chart pattern and RSI indicate higher levels for the Nikkei ahead, which would argue that support will hold on USD/JPY.” As expected, both the Nikkei and USD/JPY rose. The Nikkei matched its prior high but has so far been unable to push higher. Such a move may follow this week. Critical long-term support continues to hold on both markets, so the odds currently favour higher Nikkei and USD/JPY.

Commodities

Copper may be poised for a test of key resistance during the coming week. This market underwent a change of long-term trend to up at the beginning of July, but was unable to push higher and a correction followed. That correction looks as though it may be late in development and an upside breakout looks possible.

Cotton has been an extremely bearish market in recent weeks and has already racked up decent gains for the LS Trader system since we went short at the beginning of the month. The RSI has dropped to 18, which in and of itself does not mean that the market will reverse, merely that it is getting over-extended in the short-term. Markets can though remain over-extended for long periods so this is not by itself a reason to abandon the short position. The trend remains down and will remain so even in the even of a bounce higher.

Natural gas is another market under considerable downside pressure, and this week has seen the market close lower for three straight weeks, and five out of the last six, which has taken the market to its lowest level since January. The trend remains down.

Currencies

The Euro this week dropped to its lowest level this year and we keep our longer-term targets intact at $1.3293, which was the November 13 low basis the back-adjusted continuous contract. The Euro, which makes up 57% of the dollar index therefore remains very much in a long-term downtrend and even if prices bounce, which they may do, the long-term trend looks likely to be down for the foreseeable future.

The dollar index had a go at breaking resistance but has so far fallen short of completing the breakout. Such a breakout may occur during the coming week. Should the breakout prove successful, initial targets will be at 81.74.

Interest rate futures

Interest rate futures have had a mixed week but the long bond continues to lead the way higher. The long bond this week reached its highest level in over a year after a third straight week of gains. The long-term trend remains up for the sector but as before both the 5 & 10 year T notes have been unable to break through their own resistance levels to follow the 30-year bond higher. The trend remains up across the sector.

Good trading

Phil Seaton

LS Trader

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