Weekly Update 3rd November 2013 – LS Trader

The dollar index rallied having falling to almost 2 year lows the previous week. The dollar rally pressured commodities, most of which ended the week lower and stocks ended the week flat. The long-term trends remain intact, up for stocks, down for commodities and interest rate futures and mostly down for the dollar. Critical support/resistance levels are very near to Friday’s close on a couple of markets, in particular EUR/USD and USD/JPY so the week ahead so give a good indication to near term price action depending on the markets’ reaction to these key levels.

Stocks

The S&P 500 posted new all time highs once again, this time at 1773.25 basis the December contract, but closed slightly off the highs at 1754.75

The Nasdaq 100 also rose to new highs for the current move, briefly moving above 3400 to reach its highest level since November 2000 at 3401.75. As with the S&P 500, the Nasdaq finished the week out with a bit of weakness, ending the week lower by 0.17%

The Dax also posted new all time highs and cleared the 9000 level and closed above it. Last week we suggested a close above 9000 would be bullish and would shift the long-term focus towards 10,000 in 2014, and the index did close above 9000 on Wednesday, Thursday and Friday. The weekly close above this key level is particularly bullish. There is however bearish divergence on the RSI, which shows a loss of momentum from the prior high posted in September.

The Nikkei 225 continues to be the weakest of the 4 indices we trade at LS Trader and is still some way off its highs of the year and obviously a long way off its all time highs.

Commodities

Commodities have for the most part fallen this week which is a move consistent with the longer term downtrend that commodities have been in since 2011. Considering the weakness seen in the dollar over the past few weeks one would have perhaps expected stronger commodity prices, since commodities are for the most part priced in dollars they have a tendency to move counter to the dollar. The fact that dollar weakness did not propel commodities higher is in line with the longer term trend picture but also suggests underlying weakness. This week’s stronger dollar may have been a factor in commodity weakness.

Both the energy and the metals have been weak, as have the grains, and there are very few bullish commodities at present.

Currencies

Last week we suggested that the bearish RSI divergence in the Euro and the doji printed on the prior Friday’s daily chart may lead to the Euro pausing for a breather before the uptrend resumed. This week saw a steep sell-off on the Euro which has taken the market back to key support. There is good support around current levels for multiple reasons so if the Euro is to find support and keep the uptrend intact it should come from nearby levels. The inverse of the Euro is the dollar index, so as the Euro fell, the dollar index rallied.

We also wrote last week about the ever-tightening daily range just below key resistance that was present on the British pound, suggesting that a break out of that tight range would yield a decent move in the direction of the breakout. That breakout did come and cable broke to the downside. That was the fifth failure at similar levels over the past 2 years and highlights the importance of that level. As with the Euro, cable is also just above a key support area so the direction for the dollar, at least as far as these two major currencies are concerned should be resolved next week.

Interest rate futures

Interest rate futures ended the week lower but the 5 year T note remains the strongest, reaching the territory of a change of long-term trend to up. The 10 year T note came to within a couple of ticks of the 61.8% retracement from the May top, and the trend remains down. The trend is also down for the weakest market of the sector, the long bond. The long bond is the only market that has seen the rally fall short of the 200 day moving average, and is also below the 38.2% retracement of the decline from the May top. For now the focus remains lower but moves above the recent high would change that, at least for the immediate term.

Good trading

Phil Seaton

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