LS Trader Weekly Update – Monday 5th December 2011

The past week has been bullish for stocks and bearish for the dollar. This was not all that surprising as the prior moves in these markets had been large, so a correction was always possible. The long-term trends however remain unaffected and the week ahead should be interesting.

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

Stocks

The past week has been highly bullish for stocks and saw a 7.81% gain for the S&P 500, as the market reversed from the lows at 1147.50. The long-term trend is still down and the market did lose momentum on Thursday and Friday as shows by the doji pattern, followed by a shooting star. A shooting star is in fact a bearish reversal pattern with the long upper shadow showing that the market had rejected higher pr ices. Things can therefore go either way this week, with Mondays of late being bullish, so we may see a test of the highs of the shooting star and possibly the bearish engulfing pattern formed back on the 9th November. If both of these can be taken out then we may well see 1300, which is another resistance area. Therefore, there is quite a lot of overhead resistance that will need to be cleared for this market to move higher and before the trend can change to up.

The other scenario is that the highs of the shooting star and other resistance areas hold and we see a move back down to 1147.50.

The Nasdaq 100 has a very similar set up and is also showing a shooting star on Friday’s candle.

Commodities

We wrote last week about the importance of the $95 level for Crude Oil, and that level held firm and the resultant move pushed the January contract back above $100. The long term trend r emains up and the next upside target will be the November highs at $103.37

The weakest sector of commodities of late has been the grains, but most of them bucked that trend last week and moved higher, however the long-term trend is still down across the board.

Currencies

For the past few years there has been a strong inverse correlation between the dollar and stocks and commodities, with a move in the dollar resulting in the opposite moves for stocks and commodities and vice versa. This week has seen that happen once again that as stocks have gained, the dollar has weakened. The dollar index in fact ended the week lower by 1.38% and this is a smaller move than the moves in the stock markets may have suggested. In the short term we may be heading towards support around 7750 on the dollar index and what happens at the level may give a clearer indication of what’s coming next. If support br eaks here then we will likely see stocks and commodities gain, whereas if the dollar moves higher and back up towards 8000 then stocks and commodities will likely weaken.

Interest rate futures

Last week we wrote “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.” These markets all moved lower from those reversal patterns but still remain above support and in long-term up trends. In fact, there are numerous long lower shadows on the daily candles, which indicate that lower prices are being rejected and buyers are coming in at those support levels.

Kind Regards

Robert Stewart

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