Weekly Update 22nd July 2013 – LS Trader

During recent weekly updates we’ve been focusing on whether the May 22nd all time highs seen in the S&P 500 and Dow 30 would be exceeded. In last week’s update we suggested that the recent price action indicated that new all time highs would be seen, and this week has seen new highs reached. Due to the proximity to the 1700 level, that represents the next upside objective for the S&P 500.

The long term trends remain unchanged and as they have been for quite some time, and are still therefore up for stocks and the dollar, and down for commodities and bonds.

Stocks

Both the S&P 500 and the Dow 30 have reached new all time highs this past week as expected. The Nasdaq 100 has also reached new 12 ½ year highs. The Dax has also resumed its long-term uptrend and the Nikkei 225 has continued its recent recovery from the steep sell-off seen when the index posted 16050 intra-day on the 22nd May, the previous peak day for all the indices we trade at LS Trader.

New targets are difficult for markets that are at all time highs since there are no previous resistance levels to aim at. People can talk of sloping trendlines and channels etc. but they never really prove reliable. Whilst many will say that when a market reaches an all time high it is a good time to sell, more often the opposite is true and it is in fact very often a good time to buy. For our members this question is irrelevant in this instance since the system is already long the stock indices and will continue to be so until there is evidence that the trend has ended.

We can of course look to targets for markets that are not at all time highs. On the Nasdaq 100 the 50% retracement level of the bear market collapse from March 2000 to October 2002, which sits at 3189 basis our continuous contract data is one target for further out this year. However, the Nasdaq has been the one index that has seen some weakness come the end of the past week. In normal circumstances, moves higher are often led by the Nasdaq so the weakness seen in this index is perhaps not ideal from the bulls’ perspective. The Nikkei also has an obvious target at the May 22nd highs.

Commodities

Gold has continued to trade sideways for the past week and appears to be building up for a move. The direction of that move is at this stage unclear and largely dependent as to whether gold can clear and close above 1300. If it can, we may see some strength for gold over the coming weeks before the longer-term downtrend reasserts itself. However, should resistance at 1300 hold, which is very questionable due to the proximity of the market to that level, weakness may reassert itself quickly. The potential for lower prices remains, possibly as low as 1100 for gold, more precisely 1083 if resistance holds.

The energy sector has seen further strength, led by US crude, which gained another 2.2% this week. Currently only US crude and natural gas are in an uptrend from this sector but other markets are closing in on a change of trend to up having all been in long-term downtrends for quite some time. Whether there is strength sufficient to complete such a change of trend remains to be seen.

Currencies

Price action has continued to move against the dollar over the past week, but the longer-term trends still remain intact. The long-term trends are still up across the board and further dollar weakness will be required for that to change. The recent moves still have the characteristics of corrective moves so until that changes we can expect a resumption of dollar strength in the not too distant future.

Interest rate futures

Interest rate futures rose again, bringing the recent profitable downtrend to an end for most of the markets in this sector. The weakest of the sector continues to be the 30 Year T-Bond but even that market looks set to test critical resistance in the coming days. As before, any rallies seen will likely prove corrective and the potential for lower prices, both in the near and longer term remain.

Good trading

Phil Seaton

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