Weekly Update 28 December 2014 – LS Trader

The past week, which has been a shortened week due to the Christmas holiday, saw the S&P 500 post new all time highs yet again. The dollar has also gained and the energy markets have continued recent weakness.

There’s just 3 trading days left of 2014 and on the basis of strong seasonal tendencies for stocks we may see further new all time highs and possible breakouts for the remaining global stock indices traded by LS Trader, each of which are within range of new highs for the year.

The LS Trader system is poised to have its best year since 2008, and regardless of what happens in the next 3 days the system’s returns for the year will be well into triple figures. This has largely been due to a return to strong trending markets across several sectors, in particular the bear market in the energy sector, and is something that we think will continue overall for some time yet.

Stocks

Barring a flat close on Christmas Eve, the S&P 500 would have made a pretty rare feat of closing higher for seven straight trading days. The Dow 30 did manage this feat with seven consecutive higher closes, which has not ben seen since the Dow made 10 higher closes back in early March 2013. Trading volume has been extremely light with Boxing Day trade being the slowest full-day volume of 2014 so far.

From last week on the S&P 500 “A move above last week’s all time high with a clear move above 60 (RSI) would suggest further strength in line with the strong seasonals and Santa Claus rally.” The S&P 500 did post new all time highs and the RSI also moved above 60, ending the week at 63.46, which has the RSI back firmly in the bull range. Further strength looks likely over the week ahead. Historically the Santa Claus rally runs through to the first 2 trading days of the New Year so does not end this year until the 5th. Whether the rally continues that long (or even longer) remains to be seen.

Commodities

Both gold and silver continue to trade within the middle of the recent trading range. The long-term trend remains down for both metals and sentiment is also at low levels. Friday did however see a decent rally for both precious metals but considerable strength will be required for a change of trend to up. The RSI is in the bear range on both markets and should further rally be seen, resistance may be found around the 60 RSI level.

The energy markets have continued lower with all 5 markets making new low weekly closes for the current bear market. Natural gas really accelerated lower having gapped lower at the open on Monday and continuing lower throughout the week. The LS Trader system is of course naturally short all 5 energy markets, each of which are hugely profitable at present.

Currencies

The dollar index this week printed above 90, a level not seen since 2006. This rally has now retraced just pips over the 38.2% retracement level of the decline from 120.99 printed back in July 2001 and bullish sentiment is up to 91%. The dollar trend remains bullish across the board and higher levels cannot be ruled out.

The inverse of the dollar index is the Euro, which this week fell to its lowest level since mid-2010. Here sentiment has dropped to very low levels and is down to single figures. That does not mean that further weakness cannot be seen as we have seen similar low bullish sentiment earlier this year and the Euro continued to fall. Unsurprisingly the RSI has dropped to a bearish 35.83. There is also bullish divergence between price and RSI from early October to current levels.

Interest rate futures

Interest rate futures have moved lower this week but for now the long-term trend remains up across the sector. The RSI remains in the bull range but only just in the case of the 5 year T note which is holding just above the 40 support level. Should 40 be broken on the RSI we may see further weakness sufficient to lead to a change of trend to down in the coming weeks.

Good trading

Phil Seaton

LS Trader

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