Weekly Update 5 June 2016 – LS Trader

The past week has seen the dollar turn sharply lower and has seen numerous commodity markets move higher. The S&P 500 tested its recent high but has so far been unable to break through. Interest rate futures look to be resuming their long-term uptrends and may breakout to new highs for the year soon.

Stocks

In last week’s update, we suggested that the S&P 500 may test its recent high, and it did, but has so far been unable to break through. As before, volume remains low and has been in decline since March. However, there is no question that the trend is up for the S&P 500 and a decisive breakout, particularly above 2120 would likely lead to short-covering and fresh buying, so as unlikely as it may seem, there is potential for a rally from current levels.

As before, the long-term trend for the other three stock indices that we trade at LS Trader remains down, with both the Dax and the Nikkei trading lower this week. The Nasdaq 100 ended the week higher and is within the range of a change of trend to up. A breakout above the April high would negate the possible broadening top formation that we have written about here for several weeks.

Commodities

Several commodities are still moving higher. This week has seen both Soybean Meal and Soybeans move to new highs for the current move, and both continue to clock up huge gains for the LS Trader system. With Friday’s close of 414.30, gains on Soybean Meal are now almost 1200 points since we entered at 297.50 back on the 14th April.

The short-term position is a little mixed on both these Soybean markets, with a big up day on Thursday confirmed by decent volume, followed by a bearish day on Friday, where the large upper tail indicates that sellers took control of the market. However, the long-term trend is unquestionably still up, and considerable further weakness will be required in both markets for that to change.

Longer-term, both of these markets could move significantly higher over the coming months. Let’s keep in mind that only two years ago we saw prints of 500 on Soybean Meal and 1500 on Soybeans, still a long way above current prices. So, whereas it may be correct to say in the short-term that these moves may be a little over-extended, a longer-term view shows that there is still potential for much higher prices.

This week has seen a breakout in Lean Hogs, with three consecutive large up days, all confined by decent volume. Additionally, the RSI has broken through the 60 level, re-entering the bull range. We’re looking for a further advance towards the next resistance level at 88.57 and also 88.73, where the 200-week moving average currently sits.

Sugar moved sharply higher this week, with two big up days confirmed by heavy volume. As before, we continue to follow the 14-month head and shoulders bottom that is evident on the weekly charts, which suggests further advance towards the 21.00 area over the coming months.

Currencies

It’s been a big week in the current markets with a sharp reversal seen against the dollar. It appears that the counter-trend move of dollar strength seen since the key reversal day back on the 3rd May could have run its course. Heavy selling, particularly on Friday, which printed a long down day with heavy volume against most of the majors suggests further dollar weakness and a resumption of the long-term downtrend remains ahead.

Interest rate futures

The 30 Year T-Bond and Long Gilt both broke higher from their consolidations that we wrote about last week: “a breakout from this consolidation should yield a decent move in the direction of the eventual breakout.”

The long bond broke out through the top of the consolidation pattern and may now move higher to test the February spike high at 168.09. Based on the head and shoulder bottom pattern, where the neckline was broken on Friday, the target could run as far as 171.81, over 500 points above Friday’s close.

The UK Long Gilt broke out to its highest level since 2011. The long-term trend is up across the board for interest rate futures, and we could see further breakouts this week.

Good trading

Phil Seaton

LS Trader

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