LS Trader system update 10th February 2013

After a bit of a dip earlier in the week, the S&P 500 rose again to new 5 year highs and is now just a few percentage points off all time highs posted in 2007. U.S. markets overall remain strong, particularly the S&P 500. The Dow 30, which is not a market that we trade at LS Trader, but is still nonetheless a major index, is grappling with resistance at 14000. With all time highs just over a couple of hundred points away, strong resistance at present levels can be expected.

The long term trends are up for stocks, mixed for commodities and bonds, and mostly down for the dollar.

Stocks

Big selling hit the Dax on Monday, bringing the uptrend to an end, at least for the time being. The longer term trend however is still very much up and we may yet see new highs for the year, especially if U.S. and Asian stocks continue to advance.

The S&P 500 ended the week higher by 0.38%, with a new high weekly close for the current move as the market tries to stabilize above 1500. The weekly charts show a hanging man pattern, which is typically bearish, but also shows that any declines below 1500 are being short lived and met with new buying.

Of the 4 stock indices that we trade at LS Trader, only the Nasdaq 100 is in a long term downtrend. This is certainly a cautionary note for stock bulls as generally the most bullish advances for stocks are led by the Nasdaq, which currently is the laggard and is still almost 100 points of its recent multi-year high, whereas the S&P 500 is continually making new multi year highs. This is certainly some bearish divergence.

The Nikkei also hit new multi year highs during the past week but fell back on Thursday and Friday. These losses may well be recovered early next week.

Currently it seems that investors want out of bonds and into equities so all time highs for the S&P 500 in 2013 are a distinct possibility.

Commodities

It’s been a fairly indecisive week for the metals markets with gold and silver still remaining range bound. Even the leading two metals markets, copper and palladium lost ground this week. However, the trend is still up across the sector.

Brent Crude continues its recent good run, this week reaching its highest level since March last year, following an advance of 1.83% for the week. Gasoline and heating oil were also higher but US light crude, which along with natural gas is still in a long term downtrend, ended lower by 2.1%.

The grains sector overall has seen renewed weakness and the expected bear market decline that our proprietary trend analysis at LS Trader indicates may well be about to begin the next leg lower. Several of the grains markets are looking under pressure once more with only rough rice remaining in a long term uptrend.

Currencies

The dollar had a good week as indicated by the 1.49% weekly advance for the dollar index. The sharp drop in the Euro, which ended the week lower by 2.19%, influenced this dollar index advance. On the weekly chart, the Euro has printed a large bear sash pattern, which suggests strong resistance at the highs of the pattern at $1.3715.

The dollar reached our long term target at 9400 before pulling back to end the week almost flat, forming a doji star on the weekly charts. This is typically an indecision pattern and points to a pause in the current uptrend. As we have written several times over the past few weeks, a correction is due, especially following a 13 week advance.

Interest rate futures

Interest rate futures were mostly higher this week having earlier fallen to new lows for the current move before recovering those losses.

As we have written in recent weeks, when everyone is so bearish on a market or a sector, the move usually falls well short of expectation. Already after only a couple of weeks following the break of critical support have buyers come back in to the market, so it remains to be seen how much further the current move has to run to the downside. It may be that we have to wait a little longer before we see an extended move to the downside.

The long term trend is down for the 10 year T notes and 30 year T bond, but is still up for the shorter term markets. An extended move will not happen until the long term trends all align across the sector. This means weakness must enter the shorter term markets as well. So far this has not happened.

Good trading

Phil Seaton

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