LS Trader Weekly Update

The past week has been one of the most eventful and dramatic weeks for the markets in recent memory. Thursday saw some of the largest single day moves in many markets in market history, with the Dow 30 at one point down almost 1000 points intra day before a sharp recovery. Traders piled in to the relative safety of Gold, the US dollar and treasury markets and out of stocks.

The LS Trader System Weekly Update

Stocks

From last week “The weekly chart is showing a reversal pattern for the first time since the lows on February 5^th so we may now be coming to the end of the stock rally for now.” The prior week did prove to be the top of the market, as after a rally on Monday from support the stock markets began heading lower, before collapsing completely on Thursday. There was then a large recovery, which retraced a substantial portion of the losses before the close on Thursday but markets were again lower on Friday.

The long term trend remains up for the US and European stock indexes for now but this may change soon if the selling continues. As of Friday’s close, there are no reversal patterns in the charts to suggest that we may have seen the bottom, so we may yet see further selling. It is likely to be an interesting week ahead.

Volatility Index (VIX)

The VIX was sharply higher for a second straight week and went up a huge 85.71% for the week. Having opened the week at 22.41, the VIX began climbing steadily higher by mid week but the events of Thursday and Friday saw the index climb to 42.15 at one point on Friday before settling at 40.95. Last week we wrote that we may see a move higher towards the levels last seen on February 5^th around 29.22, but nobody could have foreseen the dramatic events of this week and the extent of the market moves.

We have been writing for quite some weeks that the low levels for the VIX were unlikely to be sustainable and that some time a large move higher would occur. This was seen during this past week and the VIX now stands at its highest level since April 2009.

Commodities

Last week we wrote on Gold “There is little in the way of resistance to prevent the market continuing higher towards all time highs around $1230.” Gold, often a safe haven in times of crisis, had a volatile week and moved lower by Wednesday before forming a reversal pattern where support came in at $1156. We then saw a strong rally up through the $1200 level to new highs for the year at $1214.9 before settling at $1210.4, the highest close since Gold topped out from all time highs in December 09.

Since Gold is priced in US dollars, it often moves in the opposite direction to Gold, but is now moving higher in spite of the continued gain in US dollars. This is a sign of a strong market and the odds favour a continuation higher to all time highs soon.

Sugar continued the downtrend, declining another 9.75% for the week but moved higher marginally from support at 13 cents. This 13 cent support level will be the level to watch for now as failure here may lead to a continuation lower around the 12 cent level where the next support area is.

Currencies

It’s been a volatile week for currencies, with the US dollar being the main beneficiary. The Japanese Yen was at one stage on Thursday sharply higher but was unable to hold on to most of those gains and the Yen fell back later in Thursday and Friday but wild swings were seen.

The dollar index rallied to a new high of 85.46 before settling at 84.66, which was the highest level for the index in 12 months. The Euro fell 4.27% to settle at $1.2740 having earlier been as low as $1.2525. There is an area of support around the $1.24 to $1.25 level, which may be tested this week. If that support fails then a move to around $1.19 may follow.

The British pound also had an eventful week, ending lower by just over 3% having breached support from the lows set back in March. A close below the March lows may lead to a test of support at $1.45.

Interest rate futures

Interest rate futures were sharply higher once again, especially for the longer term markets as traders sought out the relative safety of treasury bonds and notes. The longer term 30 year bonds were the strongest movers on Thursday, followed by the 10 and 5 year notes. Money moved out of short term 3 month Eurodollars, which moved sharply lower through support.

Kind Regards

Robert Stewart