LS Trader Weekly Update – Monday 4th June 2012

The stock index decline resumed this week following a pause the prior week. Stock indexes have now declined in 4 of the last 5 weeks.

Commodities have continued to be hit hard and with only a handful of exceptions are trending nicely lower. The dollar has continued it’s recent uptrend in spite of a bit of a reversal on Friday. The long-term trends are still up for stocks and the dollar and down for commodities although as we discuss in the stocks section below, the long-term trend is on the verge of changing to down.

We’re now seeing the best period of trending markets since 2008 and the LS Trader system continues to have a good year, reaching new equity highs for the year again this past week. If this trending phase continues we are on a target for another year of triple digit gains.

Due to the Diamond Jubilee Bank Holidays, U.K. markets will be closed Monday and Tuesday this week but U .S. markets are open as normal.

Stocks

We wrote last week “The S&P 500 pushed higher and may be headed for a test of 1340, which due to change of polarity may now act as resistance as it was previously a support level.” The S&P 500 did indeed move higher towards 1340 but fell just short of reaching that resistance level before putting in a large bearish engulfing pattern and resuming the downtrend. We also wrote last week that the 200-day moving average, which was at 1270 was a target, and the market reached the moving average almost to the tick of Friday.

The Dax declined by 4.41% for the week and as with the S&P 500 rose initially to test the change of polarity resistance level but fell just short of that. The decline resumed from there. The Nasdaq 100 is still the strongest of the major indexes and remains above change of polarity support.

Following the recent sharp declines for stock indexes the long term trends are on the verge of switching to down so we may see further weakness over the summer months for stocks.

Commodities

We wrote last week that a break of the recent low or high could lead to a decent move in the direction of the breakout and we saw that as Gold moved up through $1600 resistance and then shot higher, bringing the recent downtrend to an end for now. $1600 may now act as support and the rally may continue towards $1675.

Crude oil essentially collapsed this past week, and having fallen through $90 decline to $85 as we wrote may happen last week. Crude then continued lower to $82.29 before recovering slightly to close the week out at $82.23, ending the week down by some 8.4%. Crude is now oversold but as we have written many times before oversold markets can continue that way for a long time. The next downside target will be aroun d $77.

Currencies

The dollar index advanced 0.55% this week but had been higher, reaching 83.67 on Friday before selling off to close at 82.97. The trend is clearly still up and we should see support coming in around 8220.

The British Pound fell by 1.73% for the week but as with most other currencies did recovery somewhat on Friday. In the case of the Pound, the bounce came just off major support, which makes the areas just below last week’s lows very significant should they be broken.

As with the Pound, the Euro also declined for the week but recovered a bit on Friday. The trend however is still down and the targets remain at 12100 and further out as low as 11800.

The dollar reached its highest level against the Canadian dollar since mid-December last year and may continue to work its way towards the October highs.

Interest rate futures

Interest rate futures did initially decline towards support but support held as once again buyers returned to the market at support. This then took these markets to new highs as yields fell to record lows once again. The trend remains very bullish across the sector and is clearly very much up. How much lower yields can decline remains to be seen.

Good Trading

Phil Seaton

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