Weekly Update 18th December 2016 – LS Trader

Stocks posted new all-time highs but have since pulled back slightly. The Fed increased rates as expected this week at the FOMC meeting, and the dollar continues to climb higher. The existing downtrends in metals and interest rate futures remain intact.

It’s been another excellent week for the LS Trader System, which has just hit a new all-time high as of the close on Friday 16th December and is up 76.90%* this year to date.

Stocks

The S&P 500 made new all-time highs again this week, printing 2273 on Tuesday basis the March e-mini contract, before a bit of a pullback as the week progressed. As with our comments last week, the weight of the evidence suggests that prices will continue to head higher for now, but there is little doubt that this trend is mature. How much further upside there is remains to be seen.

The Nasdaq 100 did complete the breakout on Tuesday but has since moved sideways. The Dow 30, which is not a market we trade but is a market of interest, fell just short of the much talked about 20,000 level and may have another go this week.

The RSI on the Dow reached 87.4 on Wednesday, its highest reading since 1996! While that does show that the trend is overextended, it also suggests that this is not the top. There may be a correction, but market tops are usually accompanied by bearish divergence, of which there is none on the Dow at present. This suggests that if and when we do see a correction, we will subsequently see a rally back to new highs.

The Nikkei continues to grind higher, benefiting from a weaker Yen, and may also test the round number 20,000 level. The November 2015 high at 20,060 remains a possible target.

This is seasonally a very bullish time of year. The oft-mentioned Santa Claus rally runs, based on the data, from the 22nd (last five trading days of the year), through to the first two days in January.

Commodities

The crude markets had a highly volatile week having gapped higher at the open to complete the breakout, before reversing lower almost as quickly. Prices mean-reverted to fair value, where the found support and then turned higher once more. The trend for the energy markets remains up.

Gold continues its long-term downtrend and this week fell to its lowest level since February, and there still appears to be room for further declines. Silver also resumed its downtrend and fell to its lowest level since June.

From last week on London Cocoa: “the move is overextended in price and volatility and is, therefore, subject to some sort of correction higher. That does not mean that the market cannot move lower still, but the risk of a reversal increases on a daily basis.” London Cocoa did fall to new lows for the move but then reversed higher as expected, taking the LS Trader system out of a very profitable short trade, banking excellent profits in the process.

Currencies

From last week on the dollar index: “Thursday’s advance was accompanied by a 200% volume day, so we may see the recent high tested again this week.” The recent high was tested and exceeded, and done on large volume, which took the index to its highest level since 2002.

The Euro dropped to a new 13-year low having fallen through the 2015 double bottom between 1.0473 and 1.0490. The decline through support on Wednesday and Thursday was accompanied by 200%+ volume readings, suggesting that the trend is not over.

Interest rate futures

From last week on interest rate futures: “The recent corrective price action has relieved the volatility excess and leaves room for further declines.” Interest rate futures extended their decline this week, posting new lows for the current move. The trend remains down for the sector.

Good trading

Phil Seaton

LS Trader

*Past performance is not a guide to future performance. Future results may be higher or lower than past results

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