Weekly Update 22 May 2016 – LS Trader

The dollar has continued to advance over the past week, but the long-term trend is still down. There is potential for further dollar strength in the short-term, but we will need to see quite a bit more strength over the coming weeks for a change of long-term trend to be completed.

The commodity markets are continuing their early stages of a recovery from a deep and multi-year bear market, and stocks are consolidating just above critical support levels. It is, therefore, likely that the consolidation phase that has been present in many markets in recent months will be resolved soon, and there is potential for some very large moves in a handful of markets.

Stocks

The stock markets continue with indecisive trade in what is clearly a consolidation before the next significant move. With the exception of the S&P 500, the long-term trend for global stock indexes is down, so the odds favour a downside resolution to the current trading range.

The S&P 500 is forming a possible head and shoulders top formation which would be confirmed on a break of Thursday’s low at 2022. If that level is broken, we will likely see the 200-day moving average tested, and the 40 level on the RSI should also be tested. If the head and shoulders pattern is to reach its measured target of 1943, price will have gone well below the long-term moving average and will be deep in the bear range on the RSI. However, the change of long-term trend to down levels remain out of range, so this pattern will likely fall short of its target.

Due to the long-term trend already being down, the Nasdaq 100 is weaker than the S&P 500 and when shorting its best to sell short the weakest market. That suggests that the Nasdaq 100 will be the first to break down and also has more downside potential, with the major support being not far below current levels. We still have the broadening top formation possibly setting up, which, as we have covered in recent weeks would result in a significant device for this index, moving well below the February low at 3853.

Commodities

It’s all really about Soybeans and Soybean Meal in the commodity markets at present. Although there is a return to strength in a number of commodities markets at present, the two soybean markets are the only ones making large moves and large moves they are. Our current Soybean Meal position has open profits of just short of ten times initial risk, a ten-bagger, and as of now, the trend is not over. Our target of 375 was easily reached and exceeded, as meal rallied higher to 395.40 on Friday, before closing at 392.70 basis the July contract. That’s almost 1000 points higher than our entry price of 297.50 back on the 14th April.

Although it’s much less bullish in terms of price action, Soybeans, due to the current set up may move considerably higher yet and could be stronger than Mean over the coming weeks. Soybean Meal’s advance is almost parabolic, but Soybeans has consolidated for a few days. Based on the completed bull flag pattern and other measuring techniques, July Soybeans may push towards 1202 over the coming weeks.

Currencies

The dollar’s recent recovery has continued this week, with price on the dollar index moving back above the 50-day moving average for the first time since early March. When viewed at weekly chart level, the lows from 2015 represent major support. The brief dip below that support level and subsequent reversal to regain that support level, followed by further advance since suggests that the low printed on the 3rd May could well have been a key reversal low and that the dollar may continue higher from here over the coming weeks. For now, the long-term trend is still down for the dollar.

Interest rate futures

The long-term trend remains up across the interest rate futures sector, but strength seen in recent weeks ran out of steam at just below key resistance levels, so the breakouts that we were looking for did not occur. Currently, price is back in the middle of the range that has contained price for the past few months. A breakout in either direction could yield a significant move.

Good trading

Phil Seaton

LS Trader

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