Weekly Update 5 November 17 – LS Trader

The past week has seen new all-time highs in stocks as the stretched bull market continues to grind higher. The big moves have been seen in the energy sector, where the Crude Oil markets continue to lead the sector higher.

Stocks

The S&P 500 made a new all-time high on Friday at 2585.5 but has still fallen shy of our 2600 target. Price has made very little progress over the last two weeks, and volatility continued to compress. We also have declining volume and bearish divergence between price and RSI, where price made a new high, but RSI did not. This trend is looking old and tired.

The Nasdaq 100 also made a new high, but here too volume and volatility continues to compress. The running wedge still has a target around 6400 which may or may not be reached.

The Nikkei made new 21-year highs basis the continuous back-adjusted chart this week. The RSI has reached 80 on the weekly chart, which is a rare level for that time frame and is one that has not been seen since 2013. Here too we have bearish divergence between price and RSI and volatility remains elevated. The Nikkei is currently our most profitable open position, and we remain long from 20145 with 2480 points profit as at Friday’s close.

From last week on the Dax: “there is bearish divergence between price and RSI, but volatility remains low enough to suggest that there is still upside potential.” The Dax has continued to move higher, in fact, significantly so. Price moved to a new high on Wednesday accompanied by a new high in the RSI, erasing the bearish divergence, and volatility continues to expand and is in the sweet spot. The only negatives are the two indecision candles on Thursday and Friday and continued low volume.

Overall, the long-term trend for global stocks remains bullish, but there are signs that some markets are getting tired.

Commodities

Brent Crude has continued to push sharply higher this week following the decisive breakout above the neckline of an inverted head and shoulders pattern a couple of weeks back. The projected target from the pattern suggests a rally up to the 88.00 area, which is a big move from current prices (Friday closed at 62.07). The next target is 65.98. US Crude has seen similar bullish trade, as has RBOB Gasoline.

Lumber has had a wild ride this week, rally up to 456.50, just shy of our long-standing 461 target. Thursday saw a bearish reversal day followed by a gap lower at the open on Friday which saw further weakness. The bulls stopped the decline at 435, but the real gap from Thursday’s low remains open and may provide resistance this week. Our long Lumber trade is our second most profitable open position, and we remain long from 372.07.

Currencies

The dollar index has taken a little breather this week but remains near the local top. Resistance at the 200-day MA is likely to come into play over the next week or so and we’ll see if there’s enough strength left from the head and shoulders bottom to continue to propel this move higher. For now, the long-term trend is still down for the Index, but that may not remain the case for much longer. The position is, of course, inverted for the Euro.

The dollar is already in a long-term uptrend against the New Zealand Dollar, Japanese Yen and Swiss franc

The British Pound may have formed a major top back in September at $1.3695 basis the back-adjusted continuous contract. Thursday saw a big down day accompanied by a 200%+ volume day which broke the trend line from the March low. A decisive move below the trend line, accompanied by a break of the 40 level on the RSI, which is bull market support, could lead to further weakness with long-term targets at 1.22.

Interest rate futures

Interest rate futures had a bullish counter-trend week but remain in a long-term downtrend. Last week’s rally has taken the 30-year T-Bond to a resistance level and has also seen indecision candles printed on Friday in both the 5 and ten year notes. The long-term trend remains down for US and UK interest rate futures.

Good trading

Phil Seaton

LS Trader

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