Weekly Update 5 July 2015 – LS Trader

The past week began in eventful fashion with volatile trade seen in several markets when the markets opened late on Sunday night. Several markets made quick moves, including stock indexes, interest rate futures and some currencies. With the referendum in Greece on Sunday, it’s possible that we will see similar volatile price action this week.

The one thing that markets dislike is uncertainty, and the Greek situation is providing uncertainty. However, the referendum is known in advance, so whatever happens will likely not come as too much of a shock. At the time of writing, the Yes vote is favoured, which may be bullish for stocks and the Euro at least in the short-term, but any moves could be quickly retraced as the longer-term prospects come into focus.

U.S. markets were closed on Friday for the 4th July holiday.

Stocks

Stocks began the week sharply lower, with the Nasdaq 100 falling through support and the long-term trendline. The lows for the week in the case of the S&P 500 were printed on Tuesday, and a mild recovery has since been seen.

Even the Nikkei, which has been the strongest of the global stock indexes of late succumbed to weakness. Its trendline, which dates back to October 2014 held and the market rallied to recover a decent amount of the earlier declines.

Of the four stock indexes that we trade at LS Trader, the index most likely to be affected by the Greek situation is, of course, the German Dax. The Dax is also the weakest by far of these four indexes and has made a big move lower since its all-time high printed back in April. The market is range-bound at present, and it will take quite a large move for a change of trend to down to be confirmed.

Commodities

The grains markets continued with strength and most markets in the sector put in considerable rallies this week. These moves led to changes of the trend to up for Soybeans, Soybean Meal and Corn, joining Wheat, which had already completed a prior trend change.

Weakness is returning to the energy markets, particularly the crude markets which look as though they may be resuming the long-term downtrends and may be headed down to test the lows printed earlier in the year. Neither of the crude markets rallied sufficiently from their March lows to complete a change of trend to up, so both remain in long-term downtrends and look poised to move lower.

With all the uncertainty in global markets at present, most would be expecting a rally in gold, but this is not the case. In fact, gold continues to drift lower and this week dropped to its lowest level since March, not far above major support. The RSI on gold is holding right on bull market support at 40. If this level can be decisively broken, we may see gold move lower. Silver also moved lower this week and remains in a long-term downtrend and with the RSI in the bear range.

Currencies

The Euro may be subject to considerable volatility this week depending on the outcome of the Greek referendum on Sunday. Following volatile trade seen late Sunday and Monday last week, the market has mostly traded sideways as the markets digest what has happened and attempt to anticipate what is ahead.

If volatility does come in the Euro, which seems likely, at least in the short-term, we may see similar moves in the dollar index since the Euro makes up 57% of the dollar index. Because of that, dollar index volatility should be less than whatever is seen in the Euro. From a technical standpoint, both the dollar index and the Euro are range-bound, and it will take a decent move of a few hundred pips to see either market break from its current range.

From last week: “The New Zealand dollar dropped to a new 6-year low this week and may fall further to test the next level of support at 6700.” The New Zealand dollar did fall as expected and printed a new low for the current move at 6623 before a bit of recovery.

Interest rate futures

Interest rate futures were also affected by volatility in late Sunday/early Monday trading last week, with the initial reaction being bullish, followed by more subdued trade as the week progressed.

The 3-month Eurodollar rallied to new highs on Monday but then pulled back a bit, but the trend remains up in this market as well as the 5-Year T-Note. All other markets in the sector remain in long-term downtrends.

Good trading

Phil Seaton

LS Trader

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