Weekly Update 31 August 2014 – LS Trader

Stocks continue to rise with the S&P 500 rising to new all time highs and finally reaching the 2000 level that we have been writing about for months. The dollar has also continued to rise with the dollar index reaching its highest level since September last year. Commodities have once more been mixed, and interest rate futures have risen once more, so the long-term trends for each of these sectors remains intact.

Monday is Labor Day holiday in the U.S. so U.S. markets will be closed.

Stocks

From last week on the S&P 500 “The 2000 level that we have been writing about for months on the S&P 500 still remains elusive, but we could see those levels this week.” After what seems like an age, the S&P 500 finally clawed its way to the 2000 level and basis the e-mini electronic contact, closed just above this level at 2001.5.

The days following the Labor Day holiday in the U.S., which is on Monday, are usually bullish although the week has closed lower in 4 of the past 5 years. However, September is historically the weakest month of the year so if there is going to be a stock market correction, this month is as likely as ever on the basis of historical seasonal tendencies. However, as we have said many times before, trend outweighs seasonal tendencies and there is no question that the trend is up. Technicals on the S&P 500 also remain bullish with the RSI very much in bullish territory, closing the week at 68.29.

The Nasdaq 100 reached its highest level since September 2000 and also has bullish technicals. On the monthly chart the RSI reading is 80.61, which is the highest monthly reading since the all time high. The daily has a slightly less bullish, but bullish nonetheless reading of 75.32. There is considerable bearish divergence on the RSI from early July to current levels. This does not mean that the trend is over or that a reversal is imminent, merely that momentum is waning.

The Dax, still the weakest of the four stock indices that we trade at LS Trader came within 7 points of the 61.8% retracement of the decline from early July and briefly crossed above the 200 day moving average, only to end the week back below the average and still in a long-term downtrend. Perhaps significantly, the RSI stalled below the 60 level, so the RSI remains in the 60-20 bear range. The Dax remains the most likely of the 4 indices to break lower.

Commodities

Soybeans have continued with recent weakness and this week fell to their lowest level since September 2010. Soybean oil also fell to new lows for the current leg once again, falling to its lowest level again since April 2009 and may possibly head lower still. Soybean meal remains the strongest of the soybeans complex and once again looks set to test resistance in the coming days.

Palladium reached its highest level since 2001, moving further above the 900 level, closing the week at 909. Palladium is by far the most bullish of the metals at present. Gold and silver continue to move sideways. Silver had a couple of spike rallies higher this week but the long upper shadows indicate rejection of higher levels and the long-term trend remains down.

The energy markets rallied and the end of the downtrend in the short-term may be confirmed this week, although the long-term trend remains down across the sector and likely will for the remainder of this year.

Currencies

From last week on the Euro: “The focus is now towards still lower levels. The dollar index, which trades inversely to the Euro continued its recent advance and pushed to new highs for the current move, with the focus towards still higher levels and possibly as high as 8335.” The trend is still very much down for the Euro and up for the dollar index, but both are reaching levels where a correction could be due, both in terms of technicals and in terms of sentiment, which is reaching bearish extremes on the Euro. This suggests a possible bounce in the near-term for the Euro, which would equate to short-term weakness in the dollar index. However, the longer-term trends will remain intact for the foreseeable future in both of these markets and following a likely correction both have much further to go in the direction of their respective long-term trends.

Interest rate futures

Interest rate futures rolled from September to December this week as resumed their upward move. The 30-year T bond exceeded the highs posted earlier this month to reach its highest level since June last year. The 30 year T bond continues to find support from the upward sloping trendline from the late July low.

The 10 year T note also rose for the week but is not as bullish as the long bond, and the 5 year note remains weakest of the 3. The Euribor had a strong week helped by a large rally on Monday and the trend here remains up too, as it does for the 3 month Eurodollar.

Good trading

Phil Seaton

LS Trader

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