Weekly Update 28th October 2013 – LS Trader

The past week has seen further strength for stocks, with new all time highs being seen as well as continued weakness for the dollar overall, with the dollar index falling to almost 2 year lows. Commodities have remained mixed and interest rates have continued with recent strength.

Stocks

The S&P 500 advanced another 1.01% for the week, reaching new all time highs once again in the process. The Nasdaq 100 also rose to new highs for the current move to reach its highest level since November 2000.
The Dax rose to new all time highs again and made the biggest weekly advance of the 4 indices that we trade at LS Trader, advancing by 1.54% for the week. Basis the December contract, the Dax briefly crossed the 9000 level for the first time but closed the week just below at 8989. Whether the index can push on from here having broken a round number remains to be seen. A decisive move and close above 9000 will have traders looking for the 10,000 level in 2014, especially as the index has advanced over 500 points in just 3 weeks.

With stocks at all time highs there are no overhead resistance levels to focus on as targets so we just have to ride the trend and see how much further these markets go.

Commodities

Commodities markets remain mixed with the long-term trend being up for a handful of markets, but down for the majority. The grains markets have been particularly weak for much of this year with 5 of the 7 markets we trade at LS Trader being in long-term downtrends, the exceptions being soybeans and soybean meal. Of these soybean meal has continued its long-term uptrend this week, reaching its highest level in 6 weeks. Meal may rise further to test the year’s high at 451.20. Soybeans came close to resuming the uptrend and may do so this week. Soybean oil, by far the weakest of the soybeans complex saw 5 days of selling this week and may be poised to break lower again in the coming days.

As far as the grains are concerned, that’s the end of the bullish story as the other markets are all showing weakness. Even wheat, which has shown some strength in recent weeks, sufficient for a brief test of the 200 day moving average, resumed selling this week, keeping the downtrend intact. Corn, which has traded in a vert tight range for the past 3 weeks is close to its recent low and may yet break lower once more towards 410, the June 2012 low.

One of the most bullish commodities at present is lean hogs. Hogs this week broke above the 90 level to reach their highest level since January 2009 and may rise further over the next couple of months to the 100 level.

Currencies

The U.S. dollar declined further, falling to new lows since November 2011 once more as the Euro, which is an almost perfect invert of the dollar index rose to new highs for the year. Now that the Euro has reached new highs for the year and cleared a key resistance level in the process we can look for higher prices, with round number target at $1.40 the next obvious objective. There is though a drop in momentum, highlighted by divergence on the RSI and the doji that printed on Friday’s daily chart, so the recent rise may be about to pause for a breather before continuing higher.

The Pound is coiling up in an ever-tightening daily range just below key resistance. Patterns such as this are normally the precursor to a sharp move one way or the other. With the trend being up and resistance being so close to the current market level, the odds favour that the breakout will be to the upside. If so, a move to the January 1 high at $1.6288 basis the continuous contract is likely. This area is however a key resistance zone as rallies over the past 2 years have stalled here multiple times. If the current rally here stalls again, that would be a fifth failure and would suggest lower prices to come. However, a clear break and close above these levels would be bullish indeed and may lead to a further advance towards the May 2011 high around $1.6631.

Interest rate futures

Interest rate futures continued their recent rally, so much so that a change of trend to up is coming within range on the 5 year T notes. Further strength will be required for the 10 year notes to change trend to up. The 30 year Bond remains well off the pace but did this week reach the 38.2% retracement of the decline from May and may continue higher to test the 200 day moving average, which currently sits at 137.31.

Good trading

Phil Seaton

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