Weekly update 24th February – LS Trader

Following seven consecutive weekly advances, the S&P 500 finally had a down week, albeit a fairly small decline by Friday’s close. The dollar on the other hand has advanced against most of the majors and a new uptrend may be beginning. Dollar strength has pressured commodities and may continue to pressure stocks should the new uptrend get underway.

Stocks

As stated above, the S&P 500 ended the week lower for the first down week in 8. The market dipped below 1500 during the week but recovered on Friday. The weekly chart indicates indecision in this market and the current range remains tight. As we wrote last week, the market has been rising in agony over the past couple of weeks and does not look convincing and is very much susceptible to a correction, especially on a close below 1500.

The Dow, which as mentioned last week is not a market that we trade at LS Trader, found support at 13800 on the March contract and looks poised for a test of 14000 this week. As the Dow is holding up better than the S&P 500, the market’s reaction at 14000 may give a clue as to short term direction in other indices.

The Nikkei remains the strongest of the indices that we trade at LS Trader, and this week closed at its highest level for the current move at 11505. Last week we wrote about the range that has been in place over the past few weeks between 11000 and 11500, and give or take a few ticks, the market is still within that range. A move and close above last week’s high at 11570 would likely indicate a move higher.

The Nasdaq 100 continues to be the only stock index in a downtrend according to LS Trader’s proprietary trend algorithm, had 2 very bearish days mid-week, dipping below 2700 before recovering on Friday.

Commodities

Gold continued lower towards our target at 1550 and dragged silver lower to a confirmed change of trend to down as expected. The entire metals sector has been under pressure with a change of trend to down well within range for copper.

The energy sector has also been pressured lower with US light crude ending the week lower by 3.40%. Brent crude had a smaller decline but the move has been sufficient to bring the current uptrend to an end for now. Brent crude formed an evening star pattern on the weekly charts, which suggests weakness may continue and confirms resistance at the high of the past 3 weeks. No leaded gas and heating oil were also lower.

The grains markets have mostly continued with weakness. Wheat ended lower by 3.97% and looks set to trade below $7 a bushel for the first time since June last year

Currencies

The dollar has had a strong week, advancing well against the majors. This has put the dollar index right on the cusp of a breakout that would give a change of trend to up. Such a move, if confirmed would likely pressure commodities further and would also add to the bearish argument for stocks since commodities and stocks are historically inversely correlated with the dollar.

The British pound joins the Japanese yen as the whipping boys of the currency markets. This week’s sharp decline for the pound easily exceeded our target at $1.5350 (which many doubted when we first wrote about it several weeks ago) and may yet continue lower. If last week’s low can be taken out there is considerable room to the downside for an extended move lower during 2013.

Interest rate futures

Interest rate futures ended the week higher as the sector has continued the recovery following the lows formed 3 weeks ago. On the weekly charts, lower shadows are evident on the past weeks’ candles, indicating buyers coming in and supporting the markets. The trend remains up for the shorter term markets but is still down for the longer term markets.

Good trading

Phil Seaton

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