LS Trader Weekly Update – Monday 11th July 2011

The long-term trends are still mixed for stock indexes even though the past week has been quite bullish. Trends are also mixed for commodities and are still down for the dollar. Volatility has been present of late in many markets and sectors but we could be on the verge of some decent breakout moves soon.

Stocks

The indecision that has been present in the stock markets for the past couple of weeks finally broke out into a decent directional move early in the week and the markets continued higher until a disappointing jobs report from the US led to some weakness on Friday.

We wrote last week that the formation on the weekly charts over the past few weeks had been of a quasi morning star pattern and noted that that was a bullish reversal pattern. In addition, the S&P 500 ended the recent run of lower highs, which is an other bullish indication. Friday’s high was right on a resistance level and the market pushed lower but if the market can clear Friday’s high this week we may see another go at the highs of the year.

The Nasdaq 100 had a strong week but stalled just short of the year’s highs having recovered amazingly well from last month’s weakness.

The long-term trend remains up for the S&P 500, as it also does for the German Dax, but all the other indexes that we trade at LS Trader are in a long-term downtrend.

Commodities

Crude ended the week higher but was rejected at just below the $100 level, forming a bearish engulfing pattern on Friday. If resistance at $100 continues to hold we may see a move lower towards support at $90. Heating oil and no leaded gas were considerably higher and no leaded gasoline may continue higher towards the highs of the year.

Gold found support in the $1 470-1480 area and bounced sharply higher, ending a 2-week losing streak. We may now see a test of $1560 resistance, a level that will likely determine near-time price action for the yellow metal. Much may depend on the US dollar, but a break above $1560 may lead to another go at all time highs.

Currencies

The dollar index ended the week higher having bounced off short-term support around 7440. For the most part the index has been moving sideways and is currently in a short-term range between approximately 7450 and 7650. The wider range spans form 7330 to 7700.

The Euro is in a triangle formation, which could eventually lead to a sizeable breakout. For now the long term trend is up but the market is now down towards the bottom of the triangle. When we have a triangle we can take the range from the widest point of the triangle and then add or subtract that from the eventual breakout point for our target. The current range is around 1000 pips so a downside breakout could see a move down to approximately $1.32

Interest rate futures

We wrote last week about the dangers of prematurely considering that a trend has changed before getting confirmation of a change of trend, and right on cue the interest rate futures markets reversed yet again and remain in a long-term up-trend.

As we wrote last week, on a fundamental basis interest rate futures should probably be much lower than they are and that the markets are seemingly completely ignoring fundamentals at present. This is why we rely on the price and price action as our primary indicators as although many are bearish on this sector, prices can still move higher.

Kind Regards

Robert Stewart

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