LS Trader Weekly Update 30th September 2012

Stocks ended the month on a weak note but did manage to advance overall for the seasonally weak month of September. The dollar advanced almost across the board and commodities were mixed.

The long-term trends are still up for stocks, down for the dollar and mixed for commodities.

Stocks

Having survived what is seasonally the worst month of the year on an historical basis, stocks now enter the jinx month of October, so known because of the crashes in 1929,1987, 1997 and the meltdown in 2008 amongst others. Although stocks have managed to advance for the month, the gains came in the first half of the month and the latter half has seen weakness. However, with the exception of the Nikkei, the long-term trends are still up.

The S&P 500 December contract formed a rounded top and ended the week lower by 1.22% but is still just about holding above support and the trend is still up. If support gives way then a drop to 1400 can be expected, and possibly a move to 1390, where good support should be found. The Nasdaq 100 sold off a bit more aggressively, bringing the uptrend to an end for now.

Commodities

Gold closed the week slightly higher and just above the long-term sloping trendline that we wrote about last week that had held since November 11. Gold did initially fall through the trendline so it is now broken and did not provide support, although the market has since moved back above the line. Sloping trendlines are often unreliable, and are much less reliable than horizontal support and resistance lines, primarily because they are not as obvious to most people and the inconsistency with drawing them. As is the case with several commodities markets, there are long lower shadows on the weekly charts that indicate the lows being rejected. The trend remains up for the yellow metal.

Silver has, as usual, had similar price action to gold, where the lows of the week were rejected. The trend is still up and the target remains at 3800.

Crude oil formed a classic hammer pattern on the weekly charts, where having been sharply lower earlier in the week, which included a move below the $90 level for the first time in 8 weeks, saw strong buying and the lows being rejected. However, the long-term trend is still down for Crude and we may yet see a move down towards $88

Currencies

We wrote last week that the dollar index was back to a level that was previously major long-term support. For the downtrend to be good generally that prior support level would have acted as support but the index pushed back above that level and closed above it. This suggests further dollar strength in the near term, even though the long-term trend is still down.

The Pound continued to find resistance at $1.63 and has since headed lower with the uptrend looking like it’s coming to an end, at least for the immediate future. Several other currencies have moved back to the middle of their current trading ranges as the dollar gains some strength in the near term.

Interest rate futures

The long-term trend remains up for the interest rate futures sector and this past week has seen these markets move higher once again, and in the case of the 5-year T notes, test all time highs. The highs of the week, which came on Friday were forcibly rejected with long upper shadows showing on the daily charts, culminating in what’s known as a shooting star pattern, which is a bearish reversal pattern. So, although the trend is still up, there is undoubtedly resistance at the highs and limited upside potential.

Good trading

Phil Seaton

www.LSTrader.co.uk

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