LS Trader Weekly Update

The past week has seen stocks post new highs once again, clear significant round numbers (11000 for the Dow, 1200 for the S&P500 and 2000 for the Nasdaq 100) but then sell off after the news about the SEC going after Goldman Sachs for fraud hit the markets and sent most markets lower on Friday.

The LS Trader System Weekly Update

Stocks

From last week “The Nasdaq 100 will likely see a test of 2000 this week and if this is cleared we may see a move higher to 2040 next.” The Nasdaq did test and breach 2000 early in the week and accelerated to 2038, just 2 points short of the 2040 target that we wrote about last week. From there we got a correction but the Nasdaq 100 still managed to close above 2000 in spite of the negative news that hit the markets.

Also from last week “Therefore, all 3 US stock indexes are near psychological round numbers and it will be interesting to see the markets reaction if those levels are tested this coming week.” The S&P 500, Dow and as already mentioned, the Nasdaq 100 all moved through the round figure numbers but with the exception of the Nasdaq, the other 2 fell back through the key number.

In this month’s LS Trader newsletter we had written that the S&P 500 had gone some 47 days without a 1% correction and that such a move was due and this arrived on Friday. By Friday, some 50 days had passed without a 1% correction. The trend however is still up but we will have to wait and see what happens to the markets this week. The 3 US indexes are all still above support levels.

Volatility Index (VIX)

The VIX reached new lows for the year at 15.23 on Monday before a spike higher by 15.54% Friday left the VIX up by 13.75% for the week. The high of the day Friday was the highest level the VIX has seen in 6 weeks. As we have been writing for the past few weeks, it was unlikely that the VIX could go much lower and all it needed was a catalyst to give a big move, and that catalyst cam Friday from Goldman Sachs. It remains to be seen as to whether the market overreacted to the news on Friday, or whether this will be the start of an increase in stock index volatility.

Commodities

Commodities had begun the week well but then sold off in line with stocks after the Goldman Sachs news. Gold began the week moving higher and testing $1170 before moving lower for the week and closing back in the middle of the range at $1136.90 after losing 2.15% for the week. Crude was also lower by just shy of 2% having also begun the week in positive fashion.

Elsewhere, Sugar was lower for the week by 2.68% having fallen some 5.34% on Friday alone. However, not all markets were down as there was strength in Soybeans, Lean Hogs and Lumber.

Currencies

The Euro rallied sharply early in the week and opened with a gap higher but then fell away for the rest of the week and the long term trend remains down. Gaps are rare in the forex markets as they are 24 hour markets and obviously highly liquid. The dollar index, which is made up largely of the Euro (57% of the index is the Euro currency), obviously moves in the opposite direction to the Euro. Therefore we also got a gap lower in the dollar index Monday, but the dollar spent the rest of the week clawing back most of the losses as traders moved in to the safety of the dollar and out of the riskier higher yielding currencies.

Interest rate futures

Interest rate futures were sharply higher for the week. As before, the long term trend remains up for the shorter term markets but still down for the 30 year bond in spite of the move higher this week. The 5&10 year T-notes may have a go at resistance this week and if this resistance can be cleared then a move towards the highs of the year may follow.

Kind Regards

Robert Stewart