LS Trader Weekly Update – Monday 7th November 2011

The past week has bucked the recent short-term moves, which were against the long-term trend, to resume direction in the direction of the primary trend. These primary trends are still down for stocks and up for the dollar. Commodities still remain mixed but for the most part are still in long-term downtrends. The inverse relationship between stocks and the dollar continues.

Stocks

We wrote last week about the candle pattern formation that suggested indecision and also confirmed resistance at 1300 and we got follow through from that pattern on Monday with a tall red candle, which is a big selling day, to complete the evening star formation as we suggested may happen. An evening star in an uptrend at resistance is a bearish reversal pattern and this move pushed the S&P 500 lower, although it did recover somewhat from the lows of the week. Clearly resistance is in place at 1300 and there is some support around 1200 so that remains the range to watch for the week ahead.

Commodities

Gold cleared resistance around $1750 but as yet has failed to push on higher. The long-term trend still remains up for gold, the only metal that still remains in a long-term uptrend.

Crude has begun pushing higher again and may now edge higher towards $100 but the long term trend overall for the energy sector remains down, as it does for most commodities.

Currencies

The past week has been a resumption of the long-term trend, with the US dollar gaining against all of the majors. It has also been a volatile week with some large moves seen in many markets. The reversal of prior weakness for the dollar and the extent of last week’s move is amply highlighte d by the huge bullish engulfing pattern seen on the weekly chart of the dollar index. The weekly patterns in several of the major pairs are reversal patterns, all of which favour the US dollar, as does the long term trend.

We wrote last week about the likelihood of intervention from the Bank of Japan to weaken the Yen since it had pushed once again to all time highs and the BOJ did intervene on Monday, possibly with as much as 80bn. This move pushed the dollar higher and even exceeded the 7800 level that we mentioned last week. The long tern trend still however favours the Yen.

Interest rate futures

Interest rate futures reversed recent short-term weakness and started pushing up towards the higher end of the recent range. The 5-year T note in particular has pushed up to within touching distance of all time highs. However, with yields very near to all time lows there may well be a limit a s to how much higher these moves can go.

Kind Regards

Robert Stewart

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