LS Trader Weekly Update 11th November 2012

As expected, Obama won the U.S. Presidential election and is now in place for a second term. Opinions are divided as to whether that is a good thing or not. One thing we can say is that the markets were not particularly bullish on the outcome, although much of that is likely due to the focus now shifting towards the fiscal cliff, something which we will probably be hearing all too much about between now and the 1st January 2013.

The long-term trends are still up for stocks, but possibly not for long, mixed for the dollar and commodities. The past week has seen a shift towards risk-off as stocks have continued to sell off, and money has flowed in to the dollar and Yen.

Stocks

We have been writing about the 1380 level and 200 day moving average as a likely target for the S&P 500, and both were hit this week. As we also wrote last week, if these 2 levels could be taken out that we would likely see a continuation lower towards 1320, so that will be the next focus.

The Nasdaq 100 crashed through the 200 day moving average and the 2600 support level and will change trend to down for the first time in a long time soon if the current weakness continues.

The long-term trendline on the Dax that we have been writing about for the last couple of weeks was finally taken out this week, and decisively so. Friday did see a bit of a recovery with a hammer type candle on the daily charts (not quite a hammer as the lower shadow is not quite twice the length of the body) but this does show some buying returning to the market at just north of 7000. Whether that continues and is a support area remains to be confirmed. It’s likely that the lows of last week will be tested again soon.

Commodities

For the past couple of weeks we’ve been expecting gold to fall to the 200-day MA around $1670 and that happened this week. Gold fell to exactly the 200 day MA and that was the bottom of the short-term downtrend and also formed the low of a 3 day morning star bullish reversal pattern. From there gold has continued higher and may now target the $1750 area. The long-term trend remains up.

The $84 support level is still holding for December Crude but the trend remains down. Should support continue to hold there should be resistance at $88. $84 down and $88 up remain the levels to focus on for short-term direction.

Currencies

Last week we wrote “We may be seeing the very early stages of strength for the US dollar.” As the stock market has continued with weakness, a continuing shift towards risk-off is underway and that means money flows towards the dollar and the Yen.

The dollar index has continued higher and now looks set to test the 200 day moving average but for now the trend is still down. Continued weakness in the Euro will assist the rise of the dollar index.

The biggest market in the basket of currencies that make up the dollar index is the Euro, and as we have covered recently here the Euro has been building up for potentially a large move should it be able to break out of the recent range and take out support, a break of which would confirm that a double top was in place. Following the break of that support and confirmation of the double top, we now have a new downside target of $1.25 on the December contract.

The resistance levels that we mentioned in last week’s update held firm for both the Pound and the Dollar against Japanese Yen. This and the move towards risk-off led to the Yen strengthening and has brought the recent Yen weakness to an end for now.

Interest rate futures

The interest rate futures markets have all risen today, leaving the long-term uptrend intact. The 30-year T-bond finally broke out of the range and may now continue higher to test all time highs around 15450. Once again those calling for a top in these markets and selling short prematurely have come up wanting again.

Good trading

Phil Seaton

www.LSTrader.co.uk

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