Weekly Update 14th June 2015 – LS Trader

Stocks failed to reach new all-time highs for another week and continue to show signs of weakness, with some key technical levels being temporarily broken. The dollar has had a mixed week but has reached new multi-year highs against the New Zealand dollar. Commodities and interest rate futures remain mixed, as they have for several months, which is largely due to indecisive, corrective trade in the dollar. A decisive move seen either way in the dollar will likely see a resolution of the mostly corrective price action seen in the majority of commodities markets.

Stocks

The S&P 500’s all-time high that was printed back on the 19th May remains intact and as previously, there are still signs of weakness entering the index. This week saw a dip below the trendline from the 1st February to the May low broken before a decent rally was seen on Wednesday. The RSI has held the 40 bull market support level once again, and the long-term trend is also up, but price action to the upside has been far from impulsive or trending since March and the market continues to look prone to a deeper correction. A breach of 40 on the RSI would suggest that the top was in, at least for the time being.

The Nasdaq 100’s high that was printed back on the 27th April has also not been surpassed. Similar price action has been seen here as was seen on the S&P 500. Here too the trendline has been broken but in the case of the Nasdaq, the trendline dates back to the October low and price has closed below it ever day this week. The RSI here also holds above 40 and the trend is also up, but a change of long-term trend is coming into range and may be seen over the next few weeks should the weakness seen over the past few weeks persist.

We exited the Nikkei this week just ahead of the expiry of the June contract on a break of short-term support. The Nikkei remains the strongest of the four indexes we trade at LS Trader, and it remains above its trendline that dates back to October.

By far the weakest of the stock indexes is the Dax, which this week fell to its lowest level since February. The RSI also moved below the 40 level, and that suggests that further weakness will be seen.

We have also rolled contracts forward to the next contract for stock index futures, so are now working orders for the September contract.

As we have written about trendlines here, I thought I would touch briefly on the correct way to draw trendlines as most get them wrong. A correct trendline should start from the low of the period under consideration to the lowest low ahead of the final high of the trend currently under consideration, but must not dissect prices in the meantime. Countless times I see ‘experts’ draw trendlines that dissect prices. If the price goes through a trendline, it is either incorrectly drawn or the trendline has been broken. It is because most draw trendlines incorrectly, that horizontal support and resistance lines are far more reliable. The method I have described here makes trendlines a science and not subjective. Anyone following these rules should be able to draw trendlines correctly every time.

Commodities

The energy markets remain mixed, and the strongest market in the sector is RBOB Gasoline, which completed an upside breakout this week. The long-term trend is also up for heating oil, but that remains considerably weaker than RBOB. Both crude markets have failed to complete a change of trend to up and remain below key resistance levels in spite of the strong rally from the March low.

Natural gas also remains in a long-term downtrend but did put in a decent 3-day rally this week, but has so far been unable to clear key levels.

Sugar fell through support on its way to printing its lowest price since January 2009, and with the move being confirmed by a drop below 40 on the RSI may yet be headed lower.

Gold and silver continue to chop sideways, but silver remains the weaker of the two precious metals. Silver is also in a long-term downtrend, its RSI is below 40, and key support may be tested this week.

Currencies

The dollar index ended lower for the second straight week as the dollar correction continues. Currently, the dollar is only trending against the New Zealand dollar, where the kiwi dropped to new multi-year lows again, and against the Yen.

Against the other majors, the dollar has seen mixed trading but has been weak against the Pound, which is still the only major to have completed a change of trend to up against the dollar so far. We may yet see a push up towards the May high, especially if the 60 level on the RSI is decisively broken.

This week was quarterly expiration for currency futures, so we have rolled forward to the September contract.

Interest rate futures

Interest rate futures had dropped to new lows this week (30 Year T-Bond and 10 Year T-note) before reversing higher by the end of the week. The long-term trend for these two longer-term interest rate futures remains down, but the shorter-term markets remain in uptrends, albeit not by much.

The long gilts ended the week higher having found support from just above the lows printed during the prior week’s trading, which now is critical support.

Good trading

Phil Seaton

LS Trader

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