LS Trader Weekly Update – Monday 27th February 2012

The past week has seen stock indexes continue to climb higher, in some cases to new multi-year highs. We have also on balance seen the dollar continue recent weakness and commodities advance.

Long-term trends are up for stocks and are heading that way for commodities. The trend for the dollar is up on balance but may be changing soon.

Stocks

Friday’s high on the S&P 500 was the highest level seen since May 2008 and as we wrote last week this gives us our next target at 1385. We wrote a couple of week’s ago about the importance of the lower support from the bull channel holding and it did again this week, bouncing directly off it on Thursday before pushing to new highs. just about this week, and new highs for the year followed.

The Dax hit another new high since August and ended the week ahead by 0.37%. As was the case with the S&P 500 and with the prior week, the Dax continues to find support from the trendline that has held since December last year. Each decline towards the trendline is being met with buying.

The trend for stock indexes remains up across the board and we may yet see new highs, especially if these markets remain in the bull channels. However, although the Dow and Nasdaq 100 have cleared their 2008 highs, the S&P 500 has not and as we have written many times before, the S&P 500 is the most important of the indexes so the 1385 level will be an important level to watch as failure there will likely put the brakes on the other indexes.

Commodities

Crude oil remains in a highly bullish trend and looks to be heading towards last year’s highs around $114. The current chart shows no sign as yet of a reversal and there is nothing in the chart to suggest that the market won’ t reach that level, aside from the fact that the market is possibly a little overextended in the short term. The weekly advance for Crude was an impressive 5.96%. No leaded gas and heating oil are also on a bullish run and are following crude higher.

Gold advanced 2.93% for the week, forming a bullish candle on the weekly charts but that does not perhaps tell the full story as the last 3 trading days of the week were spinning tops and Friday was a down day. This is why the Japanese Candlestick traders counselled against using candles on weekly charts, and only using daily charts, as much of the message can be lost on a weekly chart. That said, the recent highs around $1765 may now provide some support due to change of polarity where prior resistance becomes support.

Currencies

The dollar index ended the week lower by 1.33% and now looks to be heading lower to the 7800 level and the 200 d ay moving average. For now the long term trend is up overall for the dollar but with much more continued weakness that may change soon.

The British Pound continues to trade within the box range between $1.56 and $1.59. A break of either level may give rise to a decent move but for now the trend is down. For the box range to continue, resistance around $1.59 needs to hold to send the pound lower again. The Pound had a good week against the Yen, giving a confirmed change of trend to up for the first time since July last year.

For the second week running one of the big moves of the week was in USD/JPY, with a 1.93% gain for the dollar. This has taken the dollar back above the 8000 level, which suggests a continuation higher towards 8200.

Interest rate futures

Interest rate futures headed lower and tested medium term support as expected, which held once again, leaving futures slightly ahead for the week. The long-term trend still remains up for the sector.

Kind Regards

Robert Stewart

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