LS Trader Weekly Update

The past week has seen the stock markets end their recent strength and move lower virtually across the board. We also saw a continuation of recent dollar weakness so the inverse relationship between stocks and the dollar is fading at the moment but if stocks continue to decline we may see money moving back in to the dollar.

Stocks

Last week we wrote “The S&P 500 cleared and closed above the 1100 level, reaching new highs for the week of 1117.1 and may now continue higher, although the price action of the past 3 days suggest some tiredness in this market.” On Monday the S&P 500 pushed higher initially but then sold off and was down for 4 straight days, with only a small up day on Friday, likely due to short covering ahead of the weekend preventing 5 consecutive down days. The S&P 500 ended the week down by 3.2%. There are now 2 levels to watch, and these are 1129.20 to the upside and 1034.8 to the downside, the second of these levels, which is major support, is the more significant.

The German Dax posted new highs for the year on Monday but then sold off quite sharply, with a bearish engulfing pattern on the weekly charts confirming resistance at contract highs. The odds favour lower prices in the short term here and the psychological 6000 level may be tested early this week.

Volatility Index (VIX)

The VIX moved ahead for the week as stocks fell, gaining 19.92%. The VIX touched the 30 level, which has been reasonably significant this year twice, both on Thursday and Friday but closed just below that at 28.53. The weekly chart now has a bullish engulfing pattern so we may be headed for higher levels on the VIX especially if stocks continue to weaken.

Commodities

August Gold posted new all time highs again this week at $1266.5 but then sold off before eventually finding support at $1225. Friday’s close at $1256.2 suggests a test of all time highs again soon and a close above all time highs may lead to a good continuation higher. The trend remains up as long as $1200 support holds.

Last week we wrote: “We may now get a test of $80 soon but failure to clear that level may open the door to new selling and a move back towards the bottom of the recent range.” The August contract moved up towards $80 on Monday but failed just 6 cents short and fell back to the OPEC level of $75 before moving higher again and closing at $78.86. Expect another test of $80 this week but another failure will likely lead back to $75.

Coffee had another strong week, advancing another 4.19% and is now up over 24% for the past month. Coffee was in fact considerably higher on Thursday but pulled back somewhat and then closed flat for the day on Friday.

Currencies

The northern doji that we mentioned may have been the top on the Dollar index on the 7^th June did turn out to be that way for now as the index fell through support and registered a third straight down week. We then saw a minor recovery before further weakness and the index closed in the support area around 8550. If this support area fails then we may see a continuation lower to around 8340.

Last week we wrote that if $1.24 is cleared on the Euro again that we may see further short covering and a continuation higher towards the $1.27 area. $1.24 was cleared early in the week but the market closed just below that level at $1.2393. We may see a test of $1.25 this week and if that level is cleared then a move higher towards $1.27.

The British Pound continues to move higher, reaching it’s highest level in 7 weeks, moving slightly further than the $1.5050 level that we targeted last week, but perhaps significantly closing above $1.50 at $1.5038. The long tern trend remains down but higher prices in the short term look likely and bulls will be targeting the next resistance level at $1.55.

Several markets gained for the week against the dollar, in particular the Japanese Yen, which looks set for a test of resistance this coming week.

Interest rate futures

Interest rate futures advanced for the week with both the 5 & 10 year notes reaching new contract highs, which were also new highs for the year. The 30 year bond fell just short of contract highs but we may see them tested this coming week. The long term trends overall remain up for this sector.

Kind Regards

Robert Stewart