The past week has been a very active week in the markets, and for the LS Trader system. It’s been a week that has seen multiple breakouts from ranges in several markets and sectors. The upshot of this is that the LS Trader system entered 11 trades, which is the most entered in a single week for a long time. Historically the system averages around 4-5 new trades per week, so last week’s new trades were above the norm and are indicative of changing market conditions. Many markets have been in trading ranges for a few years and it’s possible that we are in the early stages of new trending conditions.
The S&P 500 pushed to new highs once more, as did the Nasdaq 100. In the case of the S&P 500, Friday’s high of 1887.50 basis the March e-mini contract is a new all time high. The Nasdaq’s Friday high was its highest since October 2000.
The Dow 30 rallied 200 of the 250-odd points that were required for a breakout to new all time highs but was ultimately unable to breakout. As we wrote last week, should the Dow gain sufficient strength and breakout, we could have the makings of a sustainable global stock market rally. For now, the December 31st 2013 remains the all time high for the Dow.
Even the Nikkei, by far the weakest of the 4 stock indexes we trade at LS Trader advanced for the week, leaving the Dax as the only 1 of the 4 to end the week lower.
The commodity markets have seen an increase in volatility this past week. The energy markets have been particularly volatile as both Brent and Light crude had false breakouts. However, the trend is clearly up for the energy sector and all markets are in alignment for the first time in a while, so new breakouts and further rally could yet be seen over the coming weeks.
Coffee, one of our current big winning trades made another large move this week, crossing the 200 level for the first time since 2012. Lean hogs also continued its sharp rally to reach its highest level since 2008. Oats, which is our third big winner from the commodities sector pulled back this week having earlier crossed the 500 level for the first time since July 2008 basis the continuous contract.
We’ve not written much about metals in recent weeks, as there has been little happening. This week has seen decent moves in both palladium and copper. Unusually these breakouts have occurred in different directions. Palladium broke to the upside to reach its highest level in almost a year and giving a change of trend to up in the process, whereas copper broke sharply lower, falling to its lowest level since July. With gold and silver still being in long-term downtrends, only palladium is in an uptrend. However, gold is consolidating just below a key resistance area so a key breakout could be on the horizon. Gold and silver are normally highly correlated, but there is currently some divergence between the two, as silver is quite some way below key resistance and a change of trend.
Last week we wrote that the long-term trend is and has been down for the dollar index since July last year, and that the RSI remained very much in bear market territory. Friday saw the index briefly fall to its lowest level this year, and then promptly reverse. The trend however is still very much down. Possibly the only thing that is bullish for the index is that it did not break to major new lows so it has not confirmed the Euro’s rally to new long-term highs. This means that next week for both the Euro and the index could be critical as the best moves occur when both markets move together, albeit that the moves are inverted.
The Euro was not the only major currency that moved to new multi-year highs against the dollar, as the Swiss franc made the same move. Basis the continuous contract, the Swiss franc has reached its highest level against the dollar since November 2011, coinciding almost to the week for the same move in Euro/dollar.
The pound also hovers just below multi-year highs so we are at potentially a critical area for the major currencies as a reversal here would return these currencies to their trading ranges, whereas a break of the recent highs in each market could lead to an extended move in the direction of the breakout.
Interest rate futures
The long bond cleared critical resistance but was unable to push higher following the breakout, and instead reversed and moved back into the range. The entire sector, including the short-term interest rate futures (STIRs) all dropped sharply on Friday. The long-term trend however is still intact and remains up for now.