Weekly Update 6 November 2016 – LS Trader

The S&P 500 closed lower for nine consecutive days on Friday. This is the first time that has happened since 1980; such is the uncertainty ahead of this Tuesday’s Presidential Election. The dollar has also seen weakness this week. Many market participants have moved to the sidelines in financial markets ahead of the vote.

Stocks

The US stock market has been the most reliable indicator for picking US elections. Using pricing data for the three months up to the election has an 86.4% accuracy reading. When the stock market rises during those three months, the incumbent President or party wins. When the stock market is down over those three months, the challenger wins.

With the S&P 500 closing lower for nine consecutive days for the first time since 1980, the implied odds of a Trump victory are around 87%. Of the last 22 Presidential elections, this indicator has only been wrong three times, 1956, 1968 and 1980.

Have the bookies got it wrong again, just as they did with Brexit?

The markets dislike uncertainty, so whatever this week’s outcome is, market trading conditions are likely to improve considerably.

From last week on the S&P 500: “A test of the next level of support at 2100 could be key. If that level is tested and broken, we may see further declines.” This level was indeed tested and broken, and the selling continued, taking the market lower still.

Due to this decline, the market has closed below the 200-day moving average for the first time since June, the day after the Brexit vote. The RSI has also fallen to 27.98, deep into the bear range. For now, the long-term trend remains up, but that could change over the next couple of weeks.

From last week on the Nasdaq 100: “The trend remains up, but the increase in volume as the market declined suggests weakness may continue next week.” As with the S&P 500, the Nasdaq 100 also closed lower for nine consecutive days but remains above its 200-day MA. Volume has stayed above average during this decline, which indicates that the selling may not yet be over. We can expect a test of support at 4625.

Weakness has also been seen in other global stock indexes, including the Nikkei and the Dax, but nowhere near the same extent as has been seen in the US markets

Commodities

From last week: “Coffee rallied to its highest level since February last year and did so on above average weekly volume. Price may continue higher to test the area of the 200-week moving average, currently at 172.27.” Coffee did rally as expected, reaching the 172.00 level and coming within a few ticks of the 200-week MA. The trend is bullish and Friday’s big up day was supported by significant volume.

The energy markets have seen continued weakness, sufficient for a change of long-term trend to down for Natural Gas. Both Crude Oil markets have closed lower for six consecutive days, and a change of trend to down is moving within range.

Copper has seen considerable strength and this week broke out of the symmetrical triangle that has been in place since January. The rally has been supported by above average volume, so we may see further strength and a change of trend to up.

Currencies

The dollar has seen weakness almost across the board this week. The dollar index itself has pulled back to test its 50-day MA but has done so on lower than average volume.

The British Pound has moved inversely to the dollar index and has almost recovered sufficiently to reach its 50-day MA for the first time since September.

Interest rate futures

Interest rate futures have recovered some of the recent declines this week. The 30-Year T-Bond has recovered to test its 200-day MA but has so far been unable to press through.

For now, the long-term trend remains up for interest rate futures, but it won’t take much weakness for that to change as critical trend-defining support is not far below Friday’s close.

Good trading

Phil Seaton

LS Trader

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