Weekly Update 29th December 2013 – LS Trader

Stocks advanced again, in line with the so-called Santa Claus rally, which is officially the last 5 trading days of the year and the first 2 of January. Should this rally continue in line with the historical tendency, stocks may rally through to the end of the coming week. Regardless of whether stocks do continue to rally, the trend remains up across the board of stock indices and will do so quite well in to 2014 regardless of what happens. It will take a decent sell-off to change the trend to down in any of the indices we trade at LS Trader.

Stocks

As written above, stocks continued higher in line with historical seasonal tendencies, which led to all 4 indices that we trade at LS Trader advancing to new highs for the year. In the case of the Dax and the S&P 500, these new highs are all time highs. As far as the technical and long-term trend analysis is concerned these rallies could yet continue into 2014. The first full trading week of January as traders come back to their desks and trading volumes pick up will give a clearer picture.

Commodities

Further strength was seen in the energy markets, with Light crude managing to reach and clear the $100 level. The RSI broke above the 50-60 bear market resistance range so there may be further to run for this market, but the longer-term trend is still down. Light crude and no leaded gasoline are both still the weakest markets of the energy sector, but both are moving higher in the short-term. No leaded gas has a chance of a change of trend to up this week should strength continue.

Gold and silver both ended the week higher, as did the entire metals sector, but the trend is still very much down for these 2 metals. The RSI remains in bear market territory for gold and has still been unable to move above 50 on any advances. Silver remains slightly stronger than gold and is still above its recent lows, which may be tested this week. The 50-60 range on the RSI may also provide resistance should support hold and the market attempt any rally.

As 2013 comes to an end, the long-term trends are still mostly down for commodities but there have been some signs of life in some of them. At a minimum we should see some large bear market rallies in 2014 in several commodity markets, some of which may extend to new bull markets.

Currencies

The currency markets saw an increased level of volatility this week with some large daily moves on Friday in the dollar index, USD/CHF, EUR/USD and GBP/USD. With the exception of the dollar index this was following moves to new highs for the current move in the case of cable and the Euro, and a new low for USD/CHF. These moves were likely due to light trading volume during the holiday period, but even so on a very short-term basis are quite strong reversals. The longer-term trends though in each of these markets are still unaffected and remain as before. As with stocks, a clearer picture will emerge once traders return to their desks in 2014.

The dollar rose to new highs for the year against the Yen once more, registering new 5+ year highs in the process, as the Nikkei 225, the Japanese stock index, also hit new highs for the year. Strength in the Nikkei correlates to a weak yen, so as the Nikkei rises the yen falls.

Interest rate futures

The 30-year T bond was the subject of a huge spike higher on the 23rd December, a move that was a fat finger spike and was subsequently mostly corrected by the exchange. The actual move higher on that day was still sufficient to break above short-term resistance. The market has since been moving back towards the recent lows and may break lower again soon. The September low remains a critical support level for the long bond, and should the market eventually break below this level there is plenty of room for further price declines. The interest rate futures markets will be one of the markets to watch in 2014 as there is potential for some huge moves.

Good trading

Phil Seaton

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