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Weekly Update 19 June 2016 – LS Trader

The past week has seen some significant moves in numerous markets, but the focus this week will shift towards Thursday’s EU Referendum. We saw another shift late this week back in favour of the Remain camp, but that could still change.

Price movements in GBP/USD give an excellent indication towards the current sentiment and expected outcome, with Pound strength pointing to a Remain victory, and weakness pointing towards Brexit. We could see several wide swings in this and other current markets this week as the markets attempt to assess the likely outcome.

Stocks

Our single long stock index position, long S&P 500 was exited as expected this week. The S&P 500 is the only one of four stock indexes that we trade that remains in a long-term uptrend. The other three all remain in downtrends, and each moved lower this week.

The RSI on both the Dax and the Nikkei broke the 40 level this week, which suggests further weakness once the corrective bounce that began on Thursday runs its course.

The Nasdaq 100 closed below its 200-day moving average on Friday, and the RSI also broke the 40 level. We may see additional weakness over the next few days towards the next level of support at the May lows.

Commodities

Soybeans came within a hair of ending its current highly profitable trade but was saved by buyers returning to the market at Thursday’s low. Follow through was seen on Friday, which printed a bullish engulfing pattern. This makes Thursday’s low a key level for the bulls. If it holds, we may yet see a rally to new highs and possibly as high as the 1260 area.

Very similar price action was seen in our biggest winning trade of the year to date, Soybean Meal, which also narrowly held on to support, which kept the trend alive.

Sugar had another volatile week, which included a wide induction bar on Thursday, before closing the week up by 6 cents. We continue to target the 21.00 level, but a decline in volume shows that the up move is losing sponsorship at current levels. Volatility has also declined slightly, although remaining above fair value.

Currencies

All eyes will be on GBP/USD this week as the EU Referendum nears. There was a sharp turn in favour of the Pound from Thursday’s low, where a 398 pip rally followed from just three pips above support. The outcome of the Referendum could be good for a swift 500 pip move, up in the event of remain or down in the case of leave.

One of this week’s biggest movers was the Yen, which rose to its highest level against the dollar since August 2014. The dollar index has consolidated this week, as it trades around its 50-day moving average. The long-term trend remains down for the dollar index as it does for the dollar against most of the majors. The May low on the index remains a key level.

Interest rate futures

From last week; “The long bond rallied to and exceeded the 168.09 high and may now continue higher to our next target of 171.81.” We saw further rally this week to 171.21, 60 points shy of our next target. Seeing was evident on Thursday with some follow through on Friday so we may see additional weakness this week, possibly back to top/bottom support from the February high. If support there is broken then we could see a deeper correction and the top may be in.

We could see some swings in interest rate markets, particularly in the UK Long Gilt as the EU Referendum draws near. Gilts saw yields fall to new record lows this week. For now, the long-term trend is very much up across the sector, and it will take considerable weakness for that to change.

Good trading

Phil Seaton

LS Trader

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