Weekly Update – 31 December 2017 – LS Trader

We’d like to wish all our readers a very Happy and Prosperous New Year and a great year in the markets!

2018 is likely to be a very good year for traders as volatility continues to expand. Given that this year has been characterised by long periods of consolidation and low volatility, there’s a strong expectation that 2018 will deliver some monster moves.

Stocks

The Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year started on Thursday 21st December and continues through to the first two trading days of January, which this year will be Tuesday 2nd and Wednesday 3rd. So far, largely due to the wide range day on Friday and lower close in the S&P 500, the markets are currently negative for the period. If this period is not bullish, it points to a down year for stocks in the coming year with a high degree of accuracy.

The price action in US stocks over the past couple of weeks has not been impressive. The Nasdaq 100 has closed lower in 7 of the last eight trading days, not a strong close to the year.

Commodities

The energy markets remain extremely bullish as both Light Crude and Brent Crude continue to rally to new highs for the move. Brent made its highest print since May 2015 and may rally further to 69.63. Light Crude made its highest rent since June 2015 but is heading into what may prove to be a strong resistance area around the 62.00 level.

Metals have also been bullish this week, and this is one asset class that has big potential in 2018. There’s a possible inverted head and shoulders pattern being formed in Gold which, if completed with a neckline break would give a target of 1709.

Currencies

From last week: “The Dollar Index continues to trade within a narrow range, just below its 50-day moving average. This important range spans between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.” The Dollar index did break out of that range to the downside, in the direction of the primary trend, and completed a head and shoulders top pattern that gives a target down to 89.32. However, support can be expected at the September low around the 91.00 area.

We’ve previously discussed the tendency for the Euro to make its high or low for the year in January. EUR/USD did make its low for the year in 2017 on the 3rd January. This past week saw EUR/USD breakout to the upside. If this breakout is the real deal and EUR/USD continues to rise, that would suggest that a low for the year could be in. However, there’s plenty of trading in the month of January and ample time for the market to turn, and it’s also possible that the high for the year may be printed. Of course, as with all seasonal patterns, there’s no guarantee that this pattern will hold, but the past data does indicate a very strong tendency for this pattern.

Interest rate futures

Interest rate futures made a corrective rally this week but remain in long-term downtrends. As has been the case recently, the shorter-term markets remain the weakest. Will 2018 be the year that bonds break their long-term downtrend? It certainly could be if the huge head and shoulders top that is forming completes. Time will tell.

Good trading

Phil Seaton

LS Trader

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