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Weekly Update 25 September 2016 – LS Trader

The Nasdaq 100 posted new all-time highs this week, and global stock indexes continue to recover from their recent declines. The dollar has had a mixed week, and the currency markets, along with many commodities and interest rate futures remain in a low volatility, pre-breakout phase. The next few months should see some volatility breakouts and trends on increasing volumes.

Stocks

The Nasdaq 100 broke out to new all-time highs as expected but pulled back to just above the breakout point on Friday.

The S&P 500 has continued its recovery and may test resistance this week, with a possible breakout to new all-time highs to follow. As before, the negative for the bull case in the stock markets is below average volume, which shows a lack of sponsorship from institutional traders. That can change if a breakout is successful as nobody will want to miss out on a potential rally once if the market makes a desire breakout into all-time-high territory.

The Dax has had a similar short-term recovery, but in terms of distance to all-time highs remains significantly off the pace. The down sloping trend line from the 2015 high continues to provide support.

The Nikkei 225 is weaker still and remains in a long-term downtrend. Price is sandwiched between the 50 and 200-day moving averages, and considerable further rally is required for a change of trend, with a breakdown to resume the downtrend slightly more likely at present.

Commodities

With the exception of Natural Gas, the leader of the energy sector at the moment, the remaining energy markets continue to consolidate in the vicinity of their respective 50-day moving averages. The energy sector is an area where the markets are undergoing significant volatility compression, so they are in the pre-breakout phase. A breakout from this current consolidation and volatility compression should yield a decent move in the direction of the breakout.

Orange Juice is one of the few commodity markets that is trending well at present and may have enough left in it to rally further to all-time highs, printed back in March 2012 at 226.95.

The metals markets started to look a bit more positive this week having gone nowhere for the past three months. Gold found support at just above the critical 1305 area and regained its 50-day moving average. Volatility is starting to pick up, and we could see further strength this week, with an upside breakout within range.

Currencies

It’s been another mixed week for the dollar index, which continues to trade sideways along a cluster of flat moving averages, which indicates a total lack of trend for the index at present. The long-term trend for the index remains down, and the RSI is in the bear range. Volatility continues to compress, and a breakout and trend move remains well overdue.

As of Friday’s close, the LS Trader system is flat all the currency markets, which also reflects that lack of trends in this sector at present. However, support and resistance levels in several majors are close to the market, and we could see these levels tested this week.

The British Pound continues to look bearish and macro capital flows remain negative the Pound at quarterly, monthly and weekly chart level. A breakdown through the recent lows on the daily chart could open the door to further significant declines, with a long-term target down at 1.1379, the June 2001 low.

Interest rate futures

Interest rate futures have moved higher this week, and all remain in a long-term uptrend except the 3-month Eurodollar. However, these markets all continue to consolidate at present and volatility is undergoing compression in these markets, too. The markets in this sector have returned to the area of fair value, and there is no directional bias present, so we wait and watch from the sidelines for the next breakout.

Good trading

Phil Seaton

LS Trader

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