Weekly Update – 15 October 2017 – LS Trader

Global stocks continue to press higher with multiple stock indexes printing new all-time highs. The dollar has also seen some weakness this week in the direction of the long-term trend. Commodities markets remain mixed, but strength has been seen in multiple markets, particularly metals, where a couple of breakouts could be setting up this week.

Stocks

The Nasdaq 100 has potentially completed the breakout from the running wedge that we wrote about last week which gives upside targets in the region of 300 points higher to circa 6400. This week’s high is a new all-time high for the Nasdaq 100.

The S&P 500 also made a new all-time high this week continues to grind higher with relatively narrow daily trading ranges. The trend must be considered bullish as long as the lows of this month hold. The weight of the evidence is still bullish, but there are a couple of negative factors. Firstly, there is bearish divergence between price and RSI, which indicates that bulls are losing momentum. The second negative is that volume is decreasing. Average volume is now at its lowest level since the summer doldrums in early August.

The Nikkei has been supremely bullish, easily clearing recent resistance to trade at its highest level April 2000 basis the continuous back-adjusted chart. This is a very bullish development which also has technicals lining up to support the bullish stricture on monthly, weekly and daily timeframes. On the daily chart, the price has reached a rare four standard deviations above fair value and volatility is getting elevated, so we may see a period of consolidation as the market digests recent gains. However, the longer-term view can be nothing other than bullish for now.

The Dax also made a new all-time high this week, but price action is fair from convincing with multiple small bodied/doji candles appearing on the daily chart accompanied with bearish momentum divergence and a narrow trading range. The Dax is likely to be the first to breakdown on any weakness.

Commodities

The metals markets appear to be kicking up the pace again as all markets in the sector have rallied this week with Palladium and Copper leading the way higher. Both are poised to test resistance and potentially breakout this week. Silver, which is the weakest of the metals markets that we trade at LS Trader and is the only one still in a long-term downtrend is showing signs of strength and may rely further to test trend-defining resistance in the coming week or so.

Lumber has had another bullish week and exceeded our long-standing target. This week’s high is Lumber’s highest print since September 2004. We now move longer-term targets higher towards 461.00.

Currencies

The dollar turned lower again this week, moving back in the direction of the prevailing long-term downtrend. However, the market remains back within a trading range against the majors, and no breakouts are imminent, although there are a couple of markets that could breakout this week if we see an increase in volatility.

Interest rate futures

Interest rate futures have rallied this week, keeping the long-term uptrend intact in the 5 & 10 Year T-Notes and the 30 Year T-Bond. The latter could still break the neckline of a potential head and shoulders top over the coming weeks and complete a change of trend to down, but that position is not confirmed until the neckline is broken.

The UK Long Gilt and 3 Month Eurodollar, the two markets in this sector that are in long-term downtrends, continue to consolidate just above recent support. Volatility has been declining in both markets, which leans more towards mean reversion that further trend weakness, but for now both markets remain below resistance.

Good trading

Phil Seaton

LS Trader

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