LS Trader Weekly Update 20th January 2013

The S&P 500 hit new 5 year highs during the past week as the bullish stock phase continues. All time highs for the S&P 500 are now within range. Whether the markets can keep the bullish run going remains to be seen, but there is further upside potential. The long term trends are therefore still up for stocks, up for bonds, mostly down for the dollar and remain mixed for commodities.

Monday sees the U.S. markets closed for Martin Luther King Day.

Stocks

The March S&P 500 continued its recent advance and as mentioned about, reached new 5 year highs in the process. The focus now will shift towards all time highs as based on the chart structure, that is where the next real resistance level will appear. On the basis of the cash S&P 500, that represents around another 90 points, to 1575, from Friday’s close.

The March Nikkei 225 also added to gains but had a second consecutive week of volatility, which at times earlier in the week had seen much lower prices, only for the markets to recover. The weekly charts show long lower shadows on the last 2 weeks’ candles, which indicate rejection of the lows around 10400.

The Dax has continued to drift sideways but did have a go at a test of the recent highs but was unable to push through and fell back slightly. The range of the past few weeks has been very tight and volatility is on the decline in this index. That will likely change soon as a break from the range will lead to some larger price moves, in whichever direction the breakout occurs.

Commodities

Palladium did break out of the range as we suggested may happen in last week’s update but has so far been unable to push higher. The trend remains up. Other metals also had good weeks, with decent recoveries from recent selling seen in the remaining 3 metals markets that we trade at LS Trader, gold, silver and Copper. The trend for the sector is still up and there are potential upside breakouts in the coming days.

Some big moves have been seen in certain commodity markets, such as Feeder Cattle, which this past week declined by 3.37%, following a similar decline during the previous week. This move has been sufficient to change the long term trend to down. Friday’s candle was a hammer, which suggests some buying at the lows of last week and may push the market slightly higher to test the underside of the trendline, currently around 148 before resuming the downtrend. Further out we may see a continuation lower to around 135.

Currencies

The dollar has had a positive week, with the dollar index moving higher by 0.63%. The biggest move of the week came against the Swiss Franc, where the dollar advanced by 2.43%. The dollar also had a good gain against the Pound, which now looks under pressure and may complete a change of long term trend to down in the near future should weakness continue. This week has seen the Pound move below the 200 day moving average for the first time since August and should the next level of support fail, we could see further declines to around $1.53.

The dollar has gained yet again against the Japanese Yen, and as with the Nikkei, any time that selling has appeared in the last 2 weeks, buying has been seen as evidenced by the long lower shadows on the weekly charts.

Interest rate futures

Interest rate futures moved slightly higher for second week, keeping the long term uptrend intact. As before, a change of long term trend to down is within range but so far any attempts to push down through support have been met with buying. Will an extended downtrend develop should support eventually be broken? Possibly. However, it would not surprise me should the much-anticipated collapse of this sector not occur to the extent that many expect. As ever, let’s let the markets tell us where and how far they want to go simply by following the trends as they develop.

Good trading

Phil Seaton

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