LS Trader Weekly Update – Monday 28th November 2011

The past week was a shortened trading week due to the US Thanksgiving Holiday and it was a negative week for stocks and commodities but a bullish week for the dollar.

The long-term trends remain in place, and are down for stocks and commodities, and up for the dollar and interest rate futures.

Stocks

For the past couple of weeks we’ve been writing about the bearish pattern formation in stocks and the S&P 500 and have been focusing on support around 1200 and 1180. Both levels were taken out this week and that may well open the door towards the lows around 1068.

We’ve also been writing about the rounding top and head and shoulders pattern that had formed on the Nasdaq 100 and suggested that these pointed to a move lower to 2150. That’s exactly what happened this week as the Nasdaq continued lower to reach a low of 2136 before closing at 2147.5. There is still further room to the downside with little in the way of support until 2035.

Last week we wrote “One thing to be considered is that the week in the build up to Thanksgiving is normally bullish, although I don’t think seasonality is never a strong enough reason by itself to either take or not take positions. It’s far more important to follow the trend and the chart structure.” This turned out to be correct as this past week was the worst Thanksgiving week for stock indexes since 1932. Yet another reason to avoid seasonal trades.

Commodities

Gold has continued to back off from $1800 and in the short term at least the uptrend is over. For now the long term trend still remains up but this is the only metal that that statement holds true for so we may see further gold weakness and a change of long-term trend.

As we wrote last week, Crude h as also continued some short term weakness and still looks to be headed towards short term support around the $95 level, not far from Friday’s close. If last week’s lows get taken out then it may be a swift move down towards $90 but for now the trend is up.

The weakest sector of commodities has been the grains, all of which are in long-term downtrends and trending nicely lower.

Currencies

As we wrote last week, the long-term inverse relationship between stocks, commodities and the dollar still remains intact. We also wrote that a break above 7850 would likely lead to a move towards 8000 and 7850 was taken out decisively. 8000 and the October high at 8043 on the December Dollar index will be the next targets.

Overall it’s been a bullish week for the dollar with gains across the board, even against the Yen, the one market against which the dollar is still in a long-term downtrend.


Interest rate futures

Interest rate futures continue in a long-term uptrend with the exception of the 3-month Eurodollar, which is trending down nicely. The longer-term interest rate futures are still in an uptrend but all are running into resistance. Followers of candle patterns will know that each of these markets has been printing reversal patterns for the past week or so at resistance so these markets are certainly struggling to push higher with yields still near to record lows. Each of the 3 longer-term markets that we trade at LS Trader printed bear sash patterns on Friday, which are bearish reversal patterns. Whilst we would not trade these as short entries as that is counter trend, it does indicate the upside momentum is waning and that the uptrends may be coming to an end soon.

Kind Regards

Robert Stewart

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