Weekly Update 3 July 2016 – LS Trader

It’s been another volatile week in many markets as the marketplace continues to digest Brexit and what it means for global financial markets. The initial sharp move lower on the 24th saw some follow through on Monday to new lows, before a very strong reversal pattern that retraced a significant percentage of the prior decline. Typically when a retracement reaches more than the 78% level, the recovery continues to reach new highs. That would suggest further strength next week.

Note that US markets are closed on Monday due to the 4th July Independence Day holiday.

Stocks

As mentioned above, stocks continued with weakness at this week’s open before putting in a very sharp reversal. In the case of the FTSE 100, which is not a market that we trade at LS Trader due to its lack of trending characterises, the market completely retraced the prior week’s declines and soared to its highest level since August last year. This is likely a response to market expectations of a rate cut and further QE from the Bank of England over the coming months. From a technical perspective, Thursday’s bullish breakout through the neckline of the inverted head and shoulders pattern suggests further strength towards the 7000 level. In terms of strength and momentum, the FTSE is currently the strongest of the global indices.

Following the FTSE, next up in terms of strength is the S&P 500. The S&P 500 has recovered following a bullish engulfing pattern on Tuesday and could now move higher to test the recent high. The RSI remains bearish but could also rise to test the 60 level if strength continues.

Both the Dax and the Nikkei, the two weakest stock indices of the four we trade at LS Trader, have both moved higher this week, but both remain in long-term downtrends. The Nikkei’s rally this week has been on decreasing volume as the rally has progressed. This indicates a loss of sponsorship for the rally and a turn lower to test the recent low looks likely. The trend remains down, and the RSI is in the bear range.

Commodities

Several commodities markets made decent moves this week. Silver leads the way with a hugely bullish move since Tuesday’s low. We now target a crucial swing high printed two years ago at 21.63. This rally has been accompanied by rising volume, which is bullish. Silver is now the lead market in the precious metals, with Gold lagging considerably.

Coffee’s bull trend got back underway after a bit of weakness seen during the previous week and at the beginning of this week. A three-bar bullish reversal pattern completed on Tuesday and the market pressed higher to reach its highest level in almost a year. We may yet see further strength to 160.

The grains markets have seen continued weakness with Rough Rice and Wheat breaking down. Wheat has fallen to its lowest level in 6 years and is just above a critical support level. Corn, which has collapsed in recent weeks is also set to test a critical support level and may complete a change of trend to down this week.

Currencies

The currency markets have seen mixed trading this week. For the most part, some of the moves seen on the 24th June have been at least partially retraced. This has resulted in a bit of weakness in the dollar index, which has fallen back to close right on its 200-day moving average.

The British Pound fell to a new 30-year low on Monday but has consolidated since. A new test of those key lows looks likely this week.

Interest rate futures

Interest rate futures soared higher this week as yields fell to record lows. Several markets in the sector pushed to extreme levels and printed potential reversal candles with long upper shadows, which indicates rejection of the highs in the short term. This could lead to a mean reversion lower over the next few days, but the long-term trends are very much intact, and we could see significantly higher prices over the next few months.

Good trading

Phil Seaton

LS Trader

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