LS Trader Weekly Update – Monday 14th November 2011

The long-term trends still remain intact across the 4 primary sectors of stocks, commodities, forex and interest rate futures but many markets are in short term ranges and possibly on the verge of breakouts. Currently these trends are down for stocks and commodities, and up for the dollar and interest rate futures.

Stocks

We wrote last week about the range on the S&P 500 between approximately 1200 support and 1300 resistance and that those levels would be the levels to watch for a breakout. Over the past week the S&P 500 has remained in that range but it has now begun to tighten somewhat and form a triangle pattern. This means that price action is tightening and that when we get an eventual breakout it may lead to a decent move in the direction of the breakout.

One of the reasons for that is that there are now lo wer highs and higher lows, and a breakout will take out that pattern. However, even if the triangle is taken out, the primary resistance still remains at 1300, with support at 1200, so the market will have to take either of those levels out as well before we can have a decent directional move. For now the long-term trend remains down, so even though the market is nearer the upper end of this range, the odds favour a breakout to the downside.

The Nasdaq 100 is forming a rounding top, which is bearish and could even be considered to be a mini head and shoulders top. This would obviously be negated should the market take out the highs and resistance at 2430. The long-term trend here remains down and with the aforementioned patterns is potentially bearish in the short term, but the market needs to break short-term support, or the neckline, for confirmation.

Commodities

Gold this week finally cleared resistance around $1750 and pushed on higher, almost to $1800. The long-term trend still remains up for gold, the only metal that still remains in a long-term uptrend.

Crude has also pushed higher following last week’s breakout and may now be heading higher towards psychological resistance at $100. The long-term trend still remains down for the energy sector on the whole, but heating oil has also been moving up nicely along with Crude and may be on the verge of a long-term change of trend.

The grains markets have remained very bearish, with even the most bullish market of the grains sector, Corn, failing to take out resistance. Corn is now moving towards the lower end of the recent range. The soybeans sector has been particularly weak, with Soybean Meal falling to its lowest level since late 2010 and the other beans markets heading for the lows of the year.

Currencies

The dollar index has remained in a short-term consolidation, but short-term support around 7650 continues to hold and this is bullish as long as it does. A break above 7850 would likely lead to a move towards 8000 and such a move would be bearish for stocks and commodities. However, if 7650 support does give way then a move towards the 7500 level may follow but for now the trend remains up.

Interest rate futures

Interest rate futures all moved lower this week and we now have all 4 markets that we track at LS Trader moving lower, from the short term 3 month Eurodollars, all the way through to the 30 year T-bond. We wrote last week that with yields very near to all time lows there may be a limit as to how much higher these markets can go, and last week’s action failed to take out the recent highs. To say that a top is in for this sector may be premature and the long-term trend still remains up for t he sector.

Kind Regards

Robert Stewart

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