LS Trader Weekly Update 16th December 2012

The FOMC meeting came and went during the past week and delivered pretty much what market participants had expected, further stimulus. This led to further downside pressure for the dollar but did not do much for U.S. stocks, which have lagged behind their overseas counterparts.

As we move in to the last two trading weeks of the year, the long term trends are up for stocks, down for the dollar and mixed for commodities.

Stocks

The S&P 500 began the week in relatively convincing fashion, breaking through prior resistance and then continuing higher, but the latter half of the week saw the earlier gains erased. The trend is still up for the S&P 500 but this week’s price action has not been convincing.

The past week was even less convincing for the Nasdaq 100, the only stock index that we trade at LS Trader that is still currently in a long-term downtrend. The week ended with three strong selling days, which took the March contract back below the 200 day moving average.

The Dax added a fourth straight week of gains and now that the market has been able to hold above prior resistance, which should now act as support, we may see a move towards the May 2011 highs around 7700.

The Nikkei was the strongest of the stock indices and advanced 2.35% for the week, easily taking out our 9700 target in the process. The next target is our longer term upside target at 10200, which are the highs of the year so far.

Commodities

Gold and silver have both been further pressured this week as both metals declined for a third consecutive week. The trend is still up for both of these metals but there appears to be little buying at present.

Copper and Palladium fared considerably better, both continuing their recent up moves. Palladium has made a strong move higher over the past 7 weeks, rising from 589 to its present level of 702. The current level represents the highs of Q3 and is therefore likely to provide some resistance. However, if that resistance can be cleared look for a continuation higher to the highs of the year posed in February.

One commodity market that is trending very well and has done for several months is Coffee. Coffee, according to our proprietary trend indicators at LS Trader has been in a long-term downtrend since the middle of 2011, and this week has fallen to its lowest level of the year. Due to the extent of the recent trend, we may see further weakness into January and the market may yet head down further towards 13500 and possibly as low as 13000.

Currencies

With the exception of continuing its recent advance against the Yen, the dollar has declined across the board and the trend for the dollar is therefore very much down.

The dollar index, which is the best indicator of the general trend of the dollar since it is the dollar versus a basket of currencies, ended the week lower by 1.11%. This equated to the dollar’s lowest level in 8 weeks and keeps the trend for the index, and for the dollar overall, down. The next target will be support at 7900 and if that fails, the September low at 7872.

The past week has also seen quarterly forex expiration so the December contract has been rolled forward into March.

Interest rate futures

In spite of helicopter Ben’s promise to continue to buy bonds, the interest rate futures sector was lower, with the exception of the 3 month Eurodollar, which ended flat. The long-term trend remains up across the sector but how long the continues to be the case remains to be seen.

Good trading

Phil Seaton

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