LS Trader Weekly Update

It’s been another choppy week in the markets, which has seen some of the recent trends come to an end, especially in the stock markets. Whilst there has been weakness in stocks, the US dollar continues to advance against most of the majors and the rally that began late 2009 for the dollar has resumed, having stalled over the past few weeks.

The LS Trader System Weekly Update

Stocks

Stocks were hit with heavy selling as the recent uptrend came to a fairly dramatic end. The Dow 30 plunged 4.1% for the week, the S&P 500 fell 3.9% and the Nasdaq dropped 3.46%. The European indexes were also hit heavily with the Dax down 2.97%. The worst hit index was the Nikkei 225, which fell 4.51%.

A correction in stocks has been on the cards due to both the size and duration of the recent rally but it remains to be seen what will happen from here. The long term trend is still up but this will not be the case for too long if heavy selling of the magnitude seen over the past week continues.

Volatility Index (VIX)

From last week “there will at some point in 2010 almost certainly be a correction of decent size in the stock markets and a probable large move higher in the VIX as fear returns to the markets and traders look to protect themselves.”

We certainly got a move higher in the VIX as the index moved sharply higher for the week. An explosive burst higher on Thursday and Friday pushed the market higher before closing at 27.31, a staggering 50.3% gain for the week. As we have been writing for many weeks, a move of substantial size has been on the cards and the markets are not so complacent now. It’s quite likely that the VIX will continue higher from here, especially if stocks continue to struggle.

Commodities

The commodity markets were mostly lower for the week with only a few exceptions. Sugar reached new highs again Thursday before pulling back slightly to the close on Friday. Orange juice recovered some of the previous week’s losses having moved higher from support.

Metals did not fare so well with all 5 metal markets lower for the week, with big losses for Silver (-8.11%) and Gold (-3.61%). The trend is still up for metals but Silver is leading the way to the downside and will likely be the first of the metals to give a change of trend if current weakness continues.

The energy sector was also heavily hit with big losses for Crude (-4.89%), Heating Oil (-5.1%) and No leaded gas (-3.9%). The only gainer in this sector was Natural gas, which added 2.25% for the week.

Currencies

The US Dollar advanced for the week, posting new contract highs for the week on the dollar index. The Euro also declined and took out the support levels that we have been mentioning for the past few weeks at $1.42. The Euro now looks set for a test of $1.40 and if this level can be taken out then we may well see further declines to around $1.35 and possibly later in the year all the way back to $1.29.

The British pound had another volatile week, firstly clearing resistance at $1.64 before reaching a high for the week at $1.6454 and then reversing back down towards the $1.60 level. The pound has remained in a range for several months between $1.70 and $1.57 and a breach of either level is likely to give rise to good movement. For now the trend is down so the odds are that the breakout will be to the downside.

Interest rate futures

Interest rate futures moved higher again and gains were seen in all 4 of the interest rate markets that we trade at LS Trader. As we wrote last week, the long term trend is still up for the shorter term markets and we may see a continuation higher from here.

Kind Regards

Robert Stewart