2018 ended on a high note for the LS Trader system, and it brought to an end a very profitable trading year. Much of the year saw challenging trading conditions, but volatility exploded in the last quarter to usher in a new trading climate and bring an end to the period of low volatility that had dominated most markets for the past couple of years. Volatile markets are much more profitable to trade, so 2019 looks like it should be another good trading year.
The Santa Claus rally, which is where the market usually has a short, respectable rally for the last five trading days of the year, through to the first two in January. This year, that period began on the 21st through to the close on Thursday the 3rd. This year, the market finished up for that period, which is a bullish indicator for stocks for the year ahead.
We also have the first five days of January as the next seasonal indicator, as well as the January Barometer itself. Further additional seasonal data shows that pre-election years in the US are the most bullish for stocks. So, in terms of seasonal tendencies, this year has a decent chance of being bullish for stocks. However, we always view seasonal tendencies as just that, tendencies, and the technical picture still takes precedence. For now, the trend for stocks is down, but resistance is likely to be tested early next week following the sharp corrective rally since the 24th December.
From last week: “Silver is following Gold’s lead and has broken out to its highest level since August. A change of trend to up could follow soon.” Silver completed a change of long-term trend this week, reaching its highest level since July. Gold also reached its highest level since June. However, both markets saw weakness on Friday. Palladium, still the strongest of the metals, printed a new all-time high on Friday after a very bullish $40 rally.
The January effect in EUR/USD, a seasonal pattern that has been correct 76% of the time. This pattern indicates a strong tendency for EUR/USD to print its high or low for the year during January. In 76% of years, the high or low of the year for this currency has been printed during January.
The past week has seen general dollar weakness, which included some explosive price swings against the Yen. For now, the long-term trend continues to favour the dollar for all the majors except for the Yen and the Kiwi.
Interest rate futures
Interest rate futures rallied to their highest prices in almost a year, but all markets in the sector had an ugly reversal day on Friday. It remains to be seen if there is follow through to the downside next week, but the long-term trend remains up.