LS Trader Weekly Update

The past week has seen the stock markets the stock markets break down through support and give a long term trend change to down. We have also seen selling in several commodity markets and a continuation of short term US dollar weakness. Long term the trends are now up for the US dollar, up for commodities (but only just) and down for stocks. This Monday is a holiday in the US for Independence Day.

Stocks

Last week we wrote “There are now 2 levels to watch on the S&P 500, 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 S&P 500 fell through this major support level and reached its lowest level since early October last year. The long term trend is down and although there is always the possibility of a bounce higher after sustained selling, the odds favour lower prices in the longer term. The large head and shoulders pattern suggests a possible move lower to 860.

From last week on the Dax “The odds favour lower prices in the short term here and the psychological 6000 level may be tested early this week.” The 6000 level was tested and no support was found and this lead to a decline of 3.92% for the week down to a close of 5841.5. The Dax has been the strongest index of late and the long term trend is still up in this market, but this will likely change before much longer, especially in US weakness continues.

Volatility Index (VIX)

The VIX moved higher for the week gaining 5.57% but the week was mixed overall. The ViX was sharply higher early in the week and also early on Friday before dropping off later in the day, likely due to light trading ahead of the US holiday on Monday.

Commodities

August Gold reversed sharply, having failed to push higher to new highs and briefly took out support at $1200 before closing at $1207.7 for a net loss for the week of 3.86%. We will likely see another go at $1200 this week with strong support now at $1196. If this level fails then $1170 minimum will be expected to the downside. Long term the trend is up but weakness is present in the short term.

Last week we wrote on Crude: “Expect another test of $80 this week but another failure will likely lead back to $75.” August Crude was higher on Monday but stalled just below $80 and fell back to $75 as expected. The selling continued from there and we got a close at $72.14 and a decline for the week of 8.52%. We may get a test of support around $68.50 soon.

Currencies

The Dollar index continues to head south for now although this may change if the stocks markets continue to weaken. Support around 8550 failed and we may now see a continuation lower to around 8340. If stocks do continue to sell off then the dollar will likely be the beneficiary as money heads back to safer assets.

Last week we wrote that we may see a test of $1.25 on the Euro and that if that level is cleared then a move higher towards $1.27. The Euro did test and clear $1.25 and closed at $1.2557 for a gain for the week of 1.32%. The short term trend is now showing bullish signs but the long term trend is still down.

The British Pound managed a sixth straight week of advances, gaining another 1.04% for the week. There are some signs that a base may be forming around $1.50 and the market seems able to continually close above that level. The long term trend is still down but the short term trend is up and bulls will be targeting the next resistance level at $1.55.

Interest rate futures

Interest rate futures continue to move higher and both the short and long term trends remain up. The biggest gainer for the week in this sector was the 30 year T bond, which added 1.45% for the week and was considerably higher earlier in the week. The 5 & 10 year notes were also higher but stayed within a small range from Wednesday onwards as these markets appear to be pausing at these levels.