It’s been another excellent week for the LS Trader system, which has seen the system reach new all time equity highs, exceeding the previous high printed in late January. These gains came largely on the back of the continued dollar rally, the Euro’s continued collapse, and a strong recovery rally to new all time highs in the Dax. At the time of writing, the LS Trader system remains long the dollar against most of the majors, including being short the Euro, as well as long the Dax.
The long-term trends remain intact and are still up for stocks, the dollar and interest rate futures, and mostly down for commodities.
From last week: “Although considerable further weakness will be required for a change of trend to down, a break of 40 on the RSI would be a clear indication that the top may be in.” The RSI on the S&P 500 dropped to test 40 and briefly went below it, but not sufficiently to conclude that the range was now bearish. That level may however be tested again this week and a decisive break of it may indicate lower prices ahead. However, the long-term trend for now is still up.
The Dax was the strongest of the indices that we trade at LS Trader and recovered from recent short-term weakness with a large rally back to new all time highs. The long Dax trade that the LS Trader system currently has open is the third most profitable trade from current open positions.
It’s the non-U.S. markets that continue to hold up better, as in addition to the Dax’s rally, the Nikkei also rallied from just above support and went on to post new highs for the current move. 19,505, which was the Nikkei’s high back in July 2007 basis the continuous contract, is the next target. Should that level be cleared, sights would be set on round number resistance at 20,000.
From last week: “Gold and silver have both fallen hard this week and we may be on the verge of the resumption of the long-term downtrend in silver. This RSI dropped below 40 and thereby moved into the bear range, and price confirmation could follow this week.” Further weakness was seen this week in the precious metals, as silver resumed the downtrend as anticipated. The RSI is now firmly established in the bear range, so lower levels could be ahead. Much of this may depend as to whether gold will fall below its November low and continue lower.
Crude oil remains the weakest of the energy markets and the rally from the late January low has been almost completely retraced, and we may see a test of the January low basis the continuous contract in the coming days. As we mentioned in previous weeks, the strong rally seen in crude was not sufficient to break 60 and take crude out of the bear range. This suggests that now lows will be seen.
From last week: “The dollar is advancing across the board and is in range of new breakouts in several of the other currency contracts.” The dollar did breakout against a few more of the major currencies this week as the dollar rally continues. This led to the dollar index moving above 100 for the first time since 2003. This has resulted in the LS Trader system generating some 1030 pips profit from the current long dollar index trade. However, that pip tally is superseded by the 1779 pips profit from the current short Euro trade. This past week saw quarterly currency expiration as the March contract expired and rolled to June. The rolls banked huge profits for the LS Trader system from our short Euro and long dollar index positions.
Although there is no question that sentiment for the dollar and against the Euro is at historical extremes, the same has been true for the past couple of months, but no reversal has been seen. A turn in both markets is clearly due, but who is to say that the current moves cannot continue further? We will exit on evidence of a reversal, and as yet there is no such evidence.
Interest rate futures
Interest rate futures rallied this week, keeping the long-term uptrend intact. Although the RSI has fallen recently into the bear range, price never fell sufficiently to give a change of trend to down. This Tuesday’s COT report indicates that it is small traders that are short, while commercial hedgers remain long. This shows that the short side of the interest rate futures markets is in weak hands and that we may see further rally. Whether that rally is sufficient to retest the recent highs remains to be seen. The first indication of that will be a move back above 60 on the RSI.