Weekly Update 9th December 2013 – LS Trader

Stocks made slight new highs this week in the case of the Nasdaq 100, but the other indices lagged behind. The dollar has seen overall weakness with the dollar index falling to new lows for the current move, and commodities have been a mixed bag. There have been a couple of changes of long-term trends this week but overall the trends by sector remain as they have been for quite some time, namely up for stocks and down for everything else.

Stocks

The S&P 500 made a small advance for the week, ending higher by a single point courtesy of a decent recovery on Friday. It is noticeable that the past two weeks’ gains have been extremely minimal so the rally is quite possibly tiring. There are also some momentum divergences; so how much upside the current run has remains to be seen.

Once again it was the Nasdaq 100 that led the way, reaching new highs for the current move and still looking as though it has legs for further gains.

The Nikkei had a heavy 3-day sell-off mid-week but made a very strong move higher on Friday, printing a large bullish engulfing pattern to keep the uptrend intact.  The correlation between the Nikkei and USD/JPY remains extremely high, with the 3-day sell-off and subsequent recovery evident in both markets. If USD/JPY is to reach new highs for the year as we expect, further gains should be seen in the Nikkei.

The Dax was by far the weakest of the 4 indices we trade at LS Trader, printing a bearish engulfing pattern on the weekly chart and bringing the trend to an end, at least for the time being. Support may have been found at last week’s lows, with the RSI also remaining in the 40/50 bull market support range. New highs can as yet not be ruled out.

Commodities

Commodities have for the most part been in a long-term downtrend since 2011, baring a handful of exceptions. There are some signs though that strength is returning to some markets in the sector, and there is clearly plenty of potential upside. Much of the direction for commodities over the coming months will be how the dollar fares and whether markets stay in the current mode of “risk on”, or whether we see stocks begin to decline and a return to favour of “risk off” markets. It is interesting to note that the recent spell of ‘risk on” and dollar weakness has not benefitted commodities as many would expect, so there is underlying weakness for commodity markets

Crude oil made a sharp reversal this week but the trend remains down. The RSI has risen but has remained in the 50/60 bear market resistance range, suggesting that there may not be enough momentum to keep the black stuff heading higher towards $100. That of course remains to be seen as there is strength elsewhere in the sector with Brent crude leading the way higher following a 1.78% gain for the week. Natural gas completed a change of trend to up, so the trend for the sector is currently up overall.

Grains markets have remained mixed but a few of these markets look set to resume their respective downtrends. Rough rice, which has been consolidating in a tight range since late 2011, made a double close key reversal on the weekly charts and may finally break lower this week.

Currencies

The dollar index printed new lows for the current move and may yet head lower to test the year’s low at 7906, but dollar weakness is far from universal, meaning that further dollar index weakness will be reliant on continued strength in EUR/USD.

The dollar has however continued to gain against the Yen and the Canadian dollar, reaching its highest level against the latter since November 2011 basis the back-adjusted futures contract. The dollar also remains on target to reach our long-standing target of 10371 against the Yen, and go on to post new highs for the year.

Interest rate futures

Interest rate futures were lower across the board, in line with the long-term trend. Currently only the shorter-term markets remain in uptrends, with weakness being led by the long bond and the 10-year T note. The weekly charts point to lower prices in the longer-term timeframe, but the daily charts printed some indecision patterns on Friday, so short-term direction will be confirmed by this week’s price action.

Good trading

Phil Seaton

 

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