LS Trader Weekly Update 3rd September 2012

The week ahead will be a shortened trading week as Monday is Labor Day in the U.S. so U.S. markets will be officially closed. Markets elsewhere will still be trading but it is generally a light volume day.

The long-term trends are up for U.S. stocks, down for European and Asian indexes but still mixed for the dollar and commodities.

Stocks

The S&P 500 ended the week lower by 0.33% but had been lower than that until a decent recovery on Friday. The candle pattern was a piercing line, which bounced up nicely off short-term support and kept the trend running. However, we are now in to September, which is the weakest month of the year on an historical seasonal basis. The Nasdaq 100 ended marginally lower for the week but is still the strongest of the U.S. indexes.

The Dax has still been unable to confirm a change of trend and is coming close to resuming the downtrend. As with the S&P 500, Friday saw some decent buying from support, so the market is currently within a tight trading range between just below 6900 and 7100. The long-term trend is still down for now.

The Nikkei 225 was the weakest of the indexes we trade at LS Trader and we may now see a continuation of longer-term weakness.

Commodities

Gold did manage to clear the highs of the prior week and has given a change of trend back to up with a test of $1700 likely very soon. Gold often does well this time of year and September begins a strong period for the yellow metal. Silver is also moving higher and as with gold, now looks set for a change of long-term trend to up.

Energy markets were also higher for the week and the long-term trends in this sector are now mixed. The strongest market in the sector continues to be no leaded gas.

Soybeans and Soybean Meal remain the strongest markets of all, both very much in bull markets. Both markets posted new all time highs again this past week and may yet continue higher. Oats also rose it its highest level in over a year and continues to trend higher. The weakest market of the sector is rough rice, which this week declined by 2.58%.

Currencies

The dollar index support levels that we mentioned last week did fail to hold and the market went below support and the 200-day moving average. We saw a small bounce towards the end of the week but the market closed just under the prior support level. Whether this now acts as resistance remains to be seen.

The dollar is therefore very mixed at the moment with the dollar still in a long-term uptrend against some of the majors but in a downtrend against some others.

Interest rate futures

Last week we wrote: “Those that thought that a top was in and went short will have been caught once again by going against a very strong uptrend.” This is another example of why trading against the long-term trend is dangerous and is something we never do. There is a general principle in trading that the markets will move in the direction that causes the maximum amount of pain for the most amount of people. There have been lots of people trying to pick the top and shorting these markets, so far very unsuccessfully. That said, there seems limited upside for the sector from here and the risk/reward for going long is not attractive, but confirmation of a change of trend to down is required before attempting any short entries.

Good trading

Phil Seaton

www.LSTrader.co.uk

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