LS Trader System Update 13th January 2013

Stocks have continued in bullish fashion over the past week and have gone on to make new highs for the current run while the dollar has continued with long term weakness. The trends are therefore still up for stocks and bonds, mixed for commodities and mostly against the dollar. Dollar strength has continued against the yen but that is more to do with yen weakness than dollar strength.

Stocks

The March S&P 500 advanced by 0.65% for the week, taking out the highs of last year. The support zone provided by the window from the gap up 2 weeks ago that we wrote about last week has not been tested and that window may yet provide support on any weakness.

The March Nikkei 225 declined early in the week, closing the gap formed the previous week but then made a strong recovery, which recovered the earlier losses and took the index to new highs for the current move.

The Dax is drifting slightly lower in a tight range and the current uptrend may be coming to an end in the near future if weakness persists over the coming days.

This week in January is historically weak for some reason and often leads to large losses for stock indexes.

Commodities

Commodities have mostly benefited from a weaker dollar over the past week and even the grains sector, which of late has been highly bearish, managed to advance. The trend for grains is still very much down and with the biggest move of the week coming on Friday, it would be very premature to say that overall grains weakness is over on the basis of a single day’s trading. Friday’s jump in Corn came as the US stockpile came in lower than expected. The long term downtrend across the sector is still very much intact.

Palladium had a very volatile week highlighted by volatile trading on Monday that took the market below support. Palladium then reversed from below support to recover the week’s losses and the long-term uptrend remains intact. We may see the current trend resume if the market can clear the local top at 718.85 on the March contract.

Currencies

The dollar declined for the week, with the dollar index ending lower by 1.24%, erasing the gains of the three prior weeks. The long term trend is still down and remains against the dollar against the majority of the majors. This move in the dollar index was inverted by the Euro, which rose to its highest level against the dollar since April last year.

The Japanese Yen has continued with weakness, declining against the dollar for yet another week as the Yen fell to new 2 ½ year lows. The Bank of Japan this week added further stimulus and is now targeting higher inflation in order to bring an end to decades of deflation. It is expected that the BOJ will raise their inflation target from 1% to 2% and such expectations may spell further weakness for the Yen.

Interest rate futures

Interest rate futures managed to find support as once again the long term uptrend remains intact. A change of trend is well within range but any weakness is being met with buying. As we wrote last week, one of the biggest problems that sellers in this sector will likely face is that since so many people have been expecting a large downtrend for so long, that such a move may fail to fully materialize.

Good trading

Phil Seaton

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