LS Trader Weekly Update 23rd July 2012

The big moves have once again come from the grains sector where a bull market is still in progress and there are a few new all time highs coming from this sector as the drought in the U.S. continues. Stocks had briefly hit new highs intra-day this week before backing off on Friday and the dollar remained mixed having recovered much of its losses for the week on Friday.

The long-term trends are still mixed for stocks and commodities but continue to favour the U.S. dollar.

Stocks

The S&P 500 initially continued with strength and posted a slight new intra-day high for the current move at 1375.7 on the September contract. The market was unable though to complete a breakout higher and fell back on Friday. The current range is therefore between last week’s high and support at 1320. The S&P 500 managed a small gain of 0.48% for the week and the long-term trend remains up.

It was a similar story for the Nasdaq 100, which having made a slight new high on Thursday also pulled back on Friday, forming a bearish engulfing pattern in the process. The Nasdaq 100 still managed a weekly advance of 1.41% in spite of Friday’s selling.

The weakest index remains the Nikkei, and following last week’s decline of 2.04%, looks to be resuming the long-term downtrend with 8260 as the next downside target on the September contract.

Commodities

Gold remains range-bound and in a sideways consolidation that suggests it is building up for a breakout. Support is still at $1547 and the long-term trend remains down.

The grains bull market continues. This past week saw Soybeans, Soybean Meal, Corn and Wheat all hit new all time highs. These trades have all been extremely profitable for the LS Trader system but how long this parabolic rise can continue for remains to be seen. Moves in grains are often very much weather driven so any sign of rain could send prices in to a sharp correction. For now the bull trends remain intact.

Feeder Cattle has been heavily sold as the steep downtrend continues in spite of a couple of days of buying mid-week.

Currencies

The dollar index had been heading lower throughout the week until a strong reversal on Friday left the index ahead by 0.12% for the week. The trend still remains up and 8400 remains the target.

The Australian dollar successfully tested and exceeded the $1.0261 target that we wrote about in the previous update and ended the week ahead by 1.54%. However, the Aussie still remains in a long-term downtrend. That may change soon if the current strength continues.

The Euro once again fell to new 2 year lows and remains on track for our target at $1.18. The next support level is at $1.21 but if that fails, $1.18 remains a distinct possibility.

Overall the long-term trend still favours the dollar against all the majors with the exception of the British Pound.

Interest rate futures

Interest rate futures continue to press higher and the 10-year T-note hit a new all time high as yields fell to record lows once again. As we have written previously there still appears to be limited upside but that could have been said for much of the past few months, but the sector has continued to rise. Yields on the 5-year notes also hit record lows and short-term 3 month Eurodollars press ever closer to par. It seems unthinkable that Eurodollars could go negative so there is certainly little upside potential in this market, something that could be said about the whole sector. This is one sector where there is an upside ceiling.

Good trading

Phil Seaton

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