Weekly Update 7 September 2014 – LS Trader

The S&P 500 posted new all time highs this week and made its all time high
weekly close at 2006. However, the advance following the break above 2000 has
not been overly convincing. The dollar has soared against the major currencies
in a week that has seen the collapse of the British Pound and the Euro amongst
others. Commodities have suffered under a stronger dollar and interest rate
futures have declined.

Stocks

The S&P 500 made new all time highs and a new all time high close was recoded
on Friday. The daily charts show a series of doji, which are indecision
patterns. The long-term trend is still very much up and the RSI continues to
gradually creep higher, closing Friday at a bullish 68.81. There is nothing to
suggest that a reversal lower is imminent, but one would possibly have expected
more decisive strength following the break of 2000. Any bullish seasonal
tendencies ended last week and we’re now in what is historically the weakest
month of the year for stocks.

From last week on the Nasdaq 100: “There is considerable bearish divergence on the RSI
from early July to current levels. This does not mean that the trend is over or
that a reversal is imminent, merely that momentum is waning.” These comments
still apply as the Nasdaq 100 ended the week higher by 8 points. It had earlier
posted a new multi-year high mid-week but corrected somewhat by Friday’s close.
The trend is still clearly up but momentum is weaker and the RSI is lower,
albeit still in a bullish range.

The Dax, still the weakest of the four stock indices that we trade at LS Trader continues
its recent strong recovery and this week the RSI rose above 60, which is a
bullish sign. If the RSI can gain some traction above 60 this week we may see
further strength back towards the all time highs posted earlier this year.

Commodities

Soybeans and soybean oil both fell to new lows for the current move and in spite of a
mild bounce higher at the end of the week both remain very bearish. The RSI is
however moving higher although it is still in a bearish range, so further
short-term strength may be seen. The long-term trend is still very much down
however.

Last week we wrote about the spikes that had been seen in silver, and wrote that the long
upper shadows indicated rejection of higher levels and that the long-term trend
remained down. This proved to be correct as silver sold off further this week.
The RSI is in a bear range and the long-term trend is down, suggesting that new
lows may be on the horizon. Gold has also been weak and a test of key levels here
may also be seen soon.

Key resistance levels held in the energy markets but this sector has seen very
volatile trading this week. In the crude oil markets (both Brent and Light) a
large drop on Tuesday was largely retraced on Wednesday, followed by further
weakness almost back to the lows of the week on Thursday and Friday.

A test of a key shelf of support in Natural gas looks likely this week. This level, which
has held since January this year may prove critical, and a decisive break of
support may pave the way for lower levels.

The long-term trend remains down across the energy sector and likely will for the remainder
of this year.

Currencies

Last week we wrote that we were looking for higher levels on the dollar index and had
targets of 8335. This level was reached and easily exceeded as the dollar
soared, particularly against the Euro and pound, both of which collapsed. The
Swiss franc was also sharply lower. The long-term trend now favours the dollar
in all the currency markets that we trade at LS Trader with the exception of
the Australian and Canadian dollars.

Interest rate futures

Short-term interest rate futures were the only markets in the sector to register strength this week.

The Euribor had another strong week helped by another large rally on Thursday, which easily pushed the December 15 contract to new highs. The trend is very much up but with par approaching, there may be limited room for further gains.

The longer-term markets all ended the week lower, which brought to an end a very profitable long trade on the 30 Year T bond, where the LS Trader system had been long since the 10th April.

Good trading

Phil Seaton
LS Trader

 

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