LS Trader Weekly Update – Monday 12th December 2011

The past week saw a small continuation of strength for stock indexes but further weakness was seen in the commodity markets and the dollar for the most part was flat. Much of the week has been focused on events in the Eurozone with the Euro summit taking centre stage.

The long-term trends are still as they have been for much of the year, down for stocks and commodities, and up for the dollar and interest rate futures.

Stocks

The past week has seen stocks continue their recent short-term advance but they still remain below resistance, in a long-term downtrend, and the short-term trend is still down. On a seasonal basis this is generally a bullish time of year but as we have said many times before this is never sufficient in and of itself to take place trades. Only a few weeks ago we were in a similar position where season al bullishness around Thanksgiving suggested strength for stocks but Thanksgiving week ended up being the worst Thanksgiving week since 1932. What is of far more importance is the resistance area around 1275 and also up to 1300. If this resistance area can be taken out then we may see some further rallies but equally should resistance hold then a move lower towards the bottom of the recent range may follow.

This Friday is quarterly stock index expiration so these markets roll out of December and into March at the end of the week.

Commodities

Gold continues to trade within an large triangle formation that goes back as far as September. The price action within the triangle is compressing which generally means that the market is beginning to coil up in preparation for a decent sized move once it makes the eventual breakout. For now the breakout could go in either direction but the long-term trend does remain up for gold, the only metal that this holds true for.

Crude failed to reach the November highs at $103.37 and ended the week lower by 1.54%. This move took Crude back below the psychological $100 level but the long term trend still remains up. Friday saw Crude find support from the 200 day moving average and recover some of the week’s losses but this support needs to hold or we may see a move lower to at least $95 in short order.

As we have written before, the weakest sector of commodities of late has been the grains and this sector has also been the nest trending of late with almost the entire sector continuing to trend lower. This past week saw Rice give a confirmed trend change to down, meaning that all the grains markets are now in a long-term downtrend.

Currencies

Currencies for the most part have been uneventful and have ended the week pretty flat. The wee kly charts for many of the major show some form of doji pattern, which represents indecision. The long- term trend still favours the dollar against all the major currencies with the exception of the Yen where the trend is still down.

This Friday is also quarterly expiry for currency futures, so the end of the week sees currency futures roll out of December and into March.

Interest rate futures

We wrote last week that the lower levels were being rejected in the interest rate futures market and there was further evidence of that this week as key support levels continued to hold. This has kept yields near record lows with the yield on the 5-Year note actually falling to a new low. The upside still looks limited from here and there is more risk to the downside but the long term trend still remains up as it has for nearly all of 2011.

Kind Regards

Robert Stewart

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