LS Trader Weekly Update – Monday 4th July 2011

The coming week will be a shortened trading week due to the July 4th Independence Day holiday in the US.

The past week has seen bullish action from stocks, bucking short-term weakness and a renewal of US dollar weakness. The markets are seemingly trading in a schizophrenic style, with extreme moves in either direction following each other. Long-term direction currently remains unclear for most markets.

The long-term trends are mixed for stock indexes, mixed for commodities but still down for the dollar.

Stocks

We have been writing for the past couple of weeks about indecision in the stock markets, highlighting in particular the doji patterns that had been formed on the last 2 weeks’ weekly charts. A long green candle followed these 2 doji candles, and this is bullish. The formation on the weekly charts over the pa st few weeks is of a quasi morning star pattern, and this is a bullish reversal pattern from the recent lows. We also wrote that the recent lows may provide some support and they did, but few would have foreseen the bullish action from support which blasted straight through 1295 resistance and also took out the recent high, breaking the trend of lower highs.

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

After recent weakness, the energy sector had a fairly strong week and Crude snapped a five-week losing streak to bounce higher from support at $90. The other energy markets followed Crude higher.

Gold declined for a second straight week and closed below the $1500 level for the first time in several weeks and the next likely target will be a test o f support around the $1460-1470 area. The long-term trend remains up for now. Silver continues to mirror Gold’s movements and also moved lower.

The grains sector has been mixed, with Corn and Wheat falling like stones but the other markets holding up relatively well. Agricultural markets also remain strong in the short term having recovered much of their recent weakness.

Currencies

The dollar index failed to clear the 7700 resistance level and this failure led to new weakness for the dollar and a fairly decent move to the downside in the direction of the long-term trend. As we have been writing of late, in spite of short-term dollar strength, which has been evident over the past several weeks, the long-term trend has remained down and many currencies have remained above short-term support.

The Swiss Franc pushed to new all time highs early in the week but then came off those highs whereas other major currencies and higher risk currencies have fared well and moved higher having held support.

Interest rate futures

Interest rate futures underwent a steep sell-off almost across the board, with only the short term 3 month Eurodollars holding up reasonably well. The other markets in this sector all sold off sharply bringing an end to the recent bullish run. Due to the duration of the recent uptrend considerable further weakness will be required for a change of long-term trend to down.

It is worth noting though that the dollar has made similar moves over the past few months leading many people to consider that the trend has changed, only for a reversal to occur and the long term trend resume itself once again. This same kind of price action could also occur in the interest rate futures sector. Fundamentally, as we have written before, this sector should probably be much lower than it is but we have seen many times that the markets seemingly completely ignore fundamentals on many occasions and many market participants are unsure of future direction.

Kind Regards

Robert Stewart

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