LS Trader Weekly Update

At the end of the shortened trading week due to the markets being closed for the bank Holiday in the UK and the Memorial Day Holiday in the US, the markets ended lower, especially stocks and commodities, whilst the dollar and bonds moved higher. The week ahead could be quite an important one as major support levels in several markets could be tested.

The LS Trader System Weekly Update

Stocks

Last week we wrote: “There is resistance for the S&P 500 around the 1122 level and failure here (if the market gets that high) may send the market back down for another test of the low of the hammer and support at 1036. If support at that level fails we will likely see a substantial sell off.”

The S&P 500 did move higher initially but ran into resistance around the 1105-1107 level and failure here (which was lower than we had indicated may be the case last week) sent the markets sharply lower, with the S&P 500 falling 3.40% for the day. We now look to support at 1036 to the downside and resistance at 1107 to the upside. A break of either level could lead to a decent move in the direction of the breakout.

Volatility Index (VIX)

The VIX ended the week higher, with a sharp advance on Friday (20.43%) for a gain for the week of 10.63%. So, the run of up weeks for the VIX resumes after the previous week broke the up week momentum. The VIX has now been higher 6 weeks out of the last 7. If stocks move lower again this week look for the VIX to rise.

Commodities

August Gold managed a small gain for the week of 0.22% but there are still signs that the market is getting tired and has possibly formed a lower high. Gold has continued to struggle at the resistance area that we mentioned last week around $1220. As before, the long term trend remains up but the longer that resistance at $1220 remains intact the more likely it is that weakness will likely return and take the market back down towards support at around $1170. For now the long term trend is up and the market remains above support. With the exception of Gold, all the other metals were down for the week with heavy losses seen in Copper, Silver and Palladium.

Crude had been edging higher of late from support at just above $67 but the past week has seen it continually run into resistance just shy of $76. Friday’s failure to clear $76 led once again to a sell off and a decline for the day of 4.15%. We may now see a move lower to test support at $67. The current range remains between these 2 levels and a break of either should give rise to decent movement in the direction of the breakout. Long term the trend is down.

Another leg lower for commodities may be on the cards as weakness is being seen in many markets and in most sectors.

Currencies

The Dollar index ended the week higher by 2.00%, clearing the resistance that we have been writing about recently at 8762. Friday’s close in this market is the highest close since and the long term trend remains up. We target 9000 next.

The Euro fell to new 4 ½ year lows during the past week and Friday’s close at $1.1966 is a new low close since December 2005. The decline for the week was 2.9% We have been writing for the past several weeks that the target was $1.19 to the downside and we may now see a continuation lower from here.

Interest rate futures

Interest rate futures all ended the week higher, with the largest gains being for the 30 year T Bonds, which advanced 1.40% for the week before closing at 12437. We may now see another go at contract highs set the previous week at 12615. The week’s gains in this market all came on Friday with an advance of 2.08% on the day. If we continue to see weakness in other markets and stocks continue lower then we will likely see yields fall, especially in the longer term 30 year bonds, which will send prices higher.

Kind Regards

Robert Stewart