Weekly Update 5th January 2014 – LS Trader

The Santa Claus rally came off the rails in the first 2 trading days of the New Year, which left only the Dow 30 making a reasonable gain for the period from the U.S. stock markets. The S&P 500 managed a very small 0.2% advance, and the Nasdaq 100 was lower for the period.

Having had an inconclusive Santa Claus rally, seasonality followers’ focus will now shift to what is known as the January Barometer, which states that as go the first 5 trading days of the year, so goes the rest of the year. With the first 2 days being sharply lower, the markets have through to Wednesday to correct that loss and register a gain for the period. This indicator does have a reasonable pedigree for seasonal indicators, with an accuracy of 88.9% since 1950. More importantly than the seasonal tendencies is the long-term trend, which is clearly up in all 4 indices that we trade at LS Trader.

Stocks

The S&P 500 rose to new all time highs on the last day of 2013 but sold off in the first 2 trading days of the year. Should this weakness continue next week, further selling may follow to take the market back towards medium-term support at 1754.

The Nikkei also rose to new highs for the current move this past week, but also saw weakness during the first 2 trading days of the New Year. The Nikkei though did put in quite a decent bullish reversal on Friday having been significantly lower earlier in the day. If this rally is good, last week’s low should hold.

Next week, which is the first full trading week of the year, should give a clearer picture of market direction as traders come back to their desks and trading volumes pick up. Volumes have been light during the holiday period, which has contributed to the volatility.

Commodities

Crude oil sold off sharply having been unable to press clearly above the $100 level. The long-term trend remains down for this market and me may see further weakness during the coming weeks, in the direction of the long-term trend. Other energy markets were also weak and may follow crude lower. Brent crude, which has been stronger than light crude for the past several months also broke lower and may head lower towards the 200 day moving average, currently at 104.46.

Silver and gold both had highly volatile weeks following weakness on the 31st December, which was sharply reversed by the close of trade that day. Both markets are now in the 50-60 range on the RSI, which often provides resistance for bear markets. Short-term momentum however points to higher prices near-term although the long-term trend for both is likely to remain down for quite some time yet

Currencies

The currency markets have seen quite a considerable increase in volatility during the past couple of weeks. This year has begun with dollar strength in most markets. The long-term trend for the currency markets remains mixed, with the trend being up for some and down for others. This was the picture for much of 2013 and was a major contributing factor for choppy markets in the commodity markets as well as the currency markets. The best moves and biggest trends come when there is a clearly defined trend for the dollar, with the dollar either in an up or down trend against all of the majors at the same time. This position will likely clarify in 2014 and will result in some extended trends in both currencies and commodities as many markets in both sectors look set to break out from long-term consolidation patters, some of which go back several years.

Interest rate futures

The 30-year T bond broke to new lows for the current move and may yet test the low of 2013, printed on the 6th September basis the continuous back-adjusted chart. The trend remains down for the longer-term markets in this sector, but is still up for the shorter-term markets.

As we wrote last week, the interest rate futures markets will be one of the sectors to watch in 2014, as there is potential for some huge moves, particularly to the downside.

Good trading

Phil Seaton

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