The LS Trader system has continued to perform very well, hitting new equity highs for the year for a third consecutive week and continues to benefit from some decent trends in various markets. This year has so far delivered excellent profitable trades from all sectors as decent moves have been caught in stocks, commodities, bonds and currencies.
Stocks have continued with their recent recovery and may yet head higher to test the recent all time highs set back on 22nd May. While stocks have been recovering, the dollar has continued to rally and has hit new multi-year highs against some of the majors. We continue to expect higher prices for the dollar over the coming months and lower commodity prices. Stocks continue to be resilient and apart from the dollar are effectively the last markets standing.
The ability to short sell is paramount for trading success in the current market environment and it’s a skill and a willingness that will be needed more over the coming months. Short selling is a big part of our approach at LS Trader and subscribers have experienced first hand the benefits of short selling in recent months and will likely benefit further as the second half of the year continues.
We at LS Trader are not huge fans of seasonality, simply because it’s so unreliable. There are however some seasonal tendencies that do seem to hold water more often than not, although even then they certainly play second fiddle to current price action. The old adage of sell in May and go away has been around for a long time and is accurate more often than not. On a statistical basis, the worst 4 months of the year begin on Wednesday so any upward seasonal pressure is coming to an end this week. That does not mean however that stocks cannot hit new all time highs and continue to rally, because it has happened before. Whether it will this time remains to be seen. The trend for stocks is still up.
Last week we wrote that we may see the S&P 500 move higher towards 1650 if it could clear the 50 day moving average. It has cleared the 50 SMA and 1650 looks likely. A successful break of 1650 would bring another go at all time highs right back into focus. As before, the trend remains up with near term support at 1550 basis the September contract and critical support at 1525.
We also wrote last week “The support level that we have been mentioning in the last two weekly updates on the Nikkei at 12420 continues to hold and this has led to a sideways range being formed, which may lead to an upward resolution and a move that will further correct the recent sharp declines. The trend remains up.” The market did get an upward resolution and a fairly swift rally followed that led to the Nikkei ending the week higher by 5.09%. We often see in an up trending market support being found around the 40-50 handle on the RSI and that’s what we saw on the weekly continuation chart. This confirms that the trend is still currently up and that the recent sharp decline was just a correction.
The bounce higher seen on the previous Friday for gold and silver has been mostly corrected this week and new lows once again look to be in reach. The LS Trader system has now been short silver for 95 trading days and we continue to ride the downtrend. The downtrend is clearly mature but the potential for lower prices remains, possibly as low as 1100 for gold, more precisely 1083, the February 2010 low. Silver may also head lower to around 1800.
The dollar advanced as expected, reaching new highs for the year as we suggested would happen. We are now looking for the possibility of an extended advance over the coming months.
The commodity-based currencies have all been under pressure, all three falling to new lows against the dollar. If the commodity sector continues to decline over the coming months these currencies will continue to suffer.
The Euro and the Pound both declined in line with our expectations with the former resuming the long term downtrend and the latter moving to within close proximity of a trend change to down. The Euro is the last of the majors to remain in a long term uptrend so a change of trend to down will really augment the argument for substantially lower prices over the coming months for the majors against the dollar.
Interest rate futures
Interest rate futures resumed the downtrend and fell to new lows for the current move in the process. The trend is firmly down with all 5 of the interest rate futures markets that we trade at LS Trader in a long-term downtrend.
Our outlook continues to be that there is plenty of potential and room for an extended decline over the coming months and indeed years. Any rallies in the interim should prove to be corrective and should be met with further weakness.