LS Trader Weekly Update – Monday 31st October 2011

The past 3-4 weeks have been a similar story, with stocks continuing to rally, while the dollar has declined. Commodities remain mixed but for the most part are still in long-term downtrends. As summer comes to a close we enter what is seasonally a bullish time of year for stocks but following the strong October rallies it remains to be seen how much is left to the upside.

Stocks

We wrote last week that we may see further strength towards 1250/1260 on the S&P 500 and the market reached that level and then continued further, with the December S&P 500 reaching 1288.8 on Thursday before pulling back slight to Friday’s close. The large move higher on Thursday was followed by a small real bodied candle which may represent some indecision at the current level, particularly with the 1300 resistance level in sight.

The N asdaq 100, which has been leading the way of late for stocks of late has continued to move towards the highs of the year and briefly crossed the 2400 level on Thursday but as with the S&P 500 it pulled back Friday and formed a northern doji. This is not in and of itself a reversal pattern but reflects some indecision and if we get a long red candle on Monday would complete an evening star pattern, which at resistance would be a bearish reversal. If however we see continued strength and a close above 2400 then we may well see a move towards the highs of the year at 2430 and a possible change of long term trend to up.

Commodities

Gold finally cleared the $1700 resistance level and continued onwards from there, only pausing slightly on Friday. If strength continues early next week then we may see a move higher towards $1800. Gold has remained the only metal in a long-term uptrend, and is there fore the strongest and the most likely to give a new buy signal.

Currencies

The dollar has continued south for a fourth straight week, with the dollar index falling through what was potentially good support around 7650. The trend remains up for now but that may change with continued weakness.

The major currencies have all fared well against the dollar of late but all still remain in a long term downtrend with the exception of the Japanese Yen, but maybe not for much longer. Several markets continue to press towards resistance levels and as with stocks, there are a few small real bodies/dojis showing on Friday including a couple of bear haramis, so there is some indecision at current levels or at least a pause. These markets could move in either direction at present so the week ahead should be interesting.

The Yen hit new record highs against the dollar, prompting speculation that the Bank of Japan will intervene once again to weaken the Yen. Possibly the only thing that is giving them pause is the fact that the Yen was softer against several other currencies. However, be on the long out for intervention and a decent sized move higher for the dollar, possibly towards the 7800 area.

Interest rate futures

Interest rate futures are beginning to head lower with the longer-term markets making new multi week lows. The long-term trend still remains up as for much of this past year this sector has been in a bull market but there are signs that these markets are beginning to potentially roll over. However, all of the markets remain above good support levels so until that changes the trends remain up.

Kind Regards

Robert Stewart

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