LS Trader Weekly Update – Monday 19th September 2011

Stock indexes had a good week after initial weakness saw them first head lower before making a good recovery. The long term trend however remain down for stocks indexes. The dollar was also lower for the week but had seen some swings in some major pairings before ending lower and the trend remains mixed for commodities.

Stocks

So far this year the seasonal September weakness has not come to the fore but we may yet see the September selling rear its head. The S&P 500 is currently flat for the month so if the record of being the worst month of the year for the S&P 500 is going to pan out this year there will have to be some considerable weakness before month end from here. For now it looks as though resistance around 1220 may be tested and the market’s reaction at that level will be a good indicator of short term action.< br>
The VIX made a sharp weekly decline of 19.57%, which included 5 down days in succession as stocks rose and now finds itself at the major 30 support area.

We wrote last week that the Dax would likely target the obvious round number at 5000 and that we could expect some support around that level and that is exactly what happened. The December contract initially moved as low as 4971 before finding support and ending the week ahead. We may still see a move towards the next support target around 4600 a bit further out and the trend still remains down.

Commodities

Further gold weakness has increased the possibility that we have seen a major top as indicated by the possible double top formation. As we wrote last week this is not confirmed as yet and for it to be an actual double top the low point between the 2 highs must be taken out, which in this case is the low of the hammer pattern j ust above $1700. If dollar strength does resume then this would add further pressure to gold, but for now the yellow metal is just about holding on to the $1800 level and the trend remains up with the market above support.

Crude continues to grapple with the resistance at $90 that we have been writing about for several weeks and appears as though it may be winding up for a decent move in the not too distant future. The short-term range on Crude therefore still spans some $15, from $75 to $90.

Currencies

The dollar ended the week lower having begun the week on strong footing and continuing the recent uptrend from prior weeks. Strength evaporated and the dollar index ended lower by 0.81% having earlier been at its highest level since February.

The Euro was as ever the inverse of the dollar index, having begun the week sharply lower, falling all the way to $1.35 before recovering and ending the week ahead by 0.94%.

The Pound was one of the majors that actually ended the week lower, and fell to its lowest level since early January and now may potentially fall as low as $1.53.

Interest rate futures

Interest rate futures retreated as stocks and riskier assets advanced. The trend is still bullish in the interest rate futures sector but the markets may be headed for a test of short term support. Only the 3 month Eurodollar managed a gain in this sector and that was by a miniscule amount.

Kind Regards

Robert Stewart

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