LS Trader Weekly Update – Monday 7th May 2012

The month of May has got off to a weak start for stock indexes, which have all sold-off this week, having failed to make new highs for the year. This has taken all of the indexes that we trade at LS Trader back below their 50-day moving averages.

The dollar reversed the prior week’s moves and ended the week higher against all of the majors with the exception of the Yen. This has led to weakness for most commodities. The long-term trends are still up for stocks, mixed for the dollar and mostly down for commodities.

Stocks

The S&P 500 topped out for the week on Tuesday and spent the rest of the week in decline. It remains to be seen as to whether we have already seen the highs for the year for the stock indexes. The answer to question may be clearer once we see the market’s reaction to a test of what should be quite go od support around 1350. If 1350 support fails and we get a confirmed break out of the current box range, then we can take the height of the range and subtract it from the low of the range to give a target of around 1290. For now the trend is still up.

We wrote last week about the relationship between Apple and the Nasdaq 100, and this week saw Apple make a large decline falling some 6.26% for the week and now looks to be heading for a test of support around $555, a break of which may open the way to further declines. Such a move would have a bearish impact on the Nasdaq 100, which has closed right on support at 2625 on the June contract. If 2625 gives way, the next support is at 2575. For now the trend is still up.

The German Dax did push above 6800 on an intra day basis but was unable to close above that level and subsequently moved lower once again and now looks to be headed for a test of the lows of the current trading around 6500. Just below this is a furth er support level created by the change of polarity from the October highs, so a key support zone is in play for the week ahead. For now the trend is still up but the market’s reaction at this support zone will provide a clue as to near term direction.

Commodities

Gold edged lower by 1.18% and continues the longer-term downtrend. The market almost reached as highs as short-term resistance at $1680 but failed to reach that far and moved back towards the lows of the range. A test of the April lows at $1613 looks likely and if that support level fails then a move to the year’s lows at $1528.6 would become the target.

Crude may a precipitous decline in the last 2 trading days of the week, taking out the support level around $101 that we wrote about a few weeks ago. The trend still remains up and a test of the 200 day moving average looks highly likely this week, with a bounce from there a pos sibility due to the extent of the 2 day move. A change of long-term trend to down is now within range.

Currencies

The dollar advanced against most of the majors and a few key support and resistance levels may be tested this week, none more important than the $1.30 level that we have been writing about for the past few weeks. Many traders will be focused on this level and a break below it, especially on a closing basis could spark a dollar rally and a breakout higher for the dollar index.

The commodity based currencies have been heavily hit this past week as a move back towards the risk-off trade has been evident, hence the move out of the riskier currencies and into the U.S dollar.

Interest rate futures

Many so called experts have been warning against interest rate futures for quite some time and have been giving sell recommendations for ages. The fact remains though that these markets are still very much in a bull market and the trend is firmly up. This was confirmed by the sharp rejection of the lows back in March and the subsequent strong rally seen since which has taken the 10 year T note back to new highs. Trying to pick tops and going against such a strong trend is a dangerous move. Trading with the trend is a far safer option even though prices are at record highs and yields at record lows. One potential fly in the ointment to higher prices is the fact that the 5 year T note is now right at resistance formed by its all time highs, and the weakest of the sector, the 30 year bonds are also approaching a test of all time highs.

Good Trading

Phil Seaton
www.LSTrader.co.uk

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