LS Trader Weekly Update

Stocks made a breakout to the downside, in the direction of the long term trend and the US Dollar rose against the major currencies, reversing the recent trend. The long term trend remains down for the dollar against most of the majors and also remains down for stocks.

Stocks

Having once again failed to break through major resistance at 1129, the S&P 500 moved down through the bottom of a rising wedge pattern, moved back below the 200 day moving average and also fell through support at 1100. The S&P 500 ended the week at 1076.1 for a weekly decline of 3.88% and looks to be headed lower still, with 1050 as the next likely target. Of late, Monday’s have been up days for stocks so it will be interesting to see if that pattern continues, if not then a test of support at 1050 may come early in the week and further out we may see a go at 1000.

In spite of good numbers coming out of the German economy, showing that the German economy had its best quarter since 1990, the German Dax, which is the only stock index still in a long term uptrend, moved lower in line with the other stock indexes. There is some support for the Dax around the 6060 area and that level may well be tested this week.

Volatility Index (VIX)

The VIX shot higher during the past week and ended the week higher by 20.7%, closing at 26.24, forming a bullish engulfing pattern on the weekly chart. The recent levels of complacency indicated by the prior low readings on the VIX may be coming to an end and the week ahead may be an important one. The bullish engulfing pattern suggests higher prices ahead for the VIX and likely lower prices for stocks.

Commodities

December Gold eked out a small gain of 0.93%, ending the week once again above the $1200 level but failing to clear resistance at $1222, which looks fairly considerable at present. Friday saw a doji pattern, which although it is not a reversal pattern does suggest some indecision about at the resistance level and we may see a pullback from here before another move higher. If $1222 can be taken out and the market is able to close above it then we may see a move higher to at least $1250 and possibly another go at all time highs later in the year.

Last week we wrote about the tower top/evening star pattern on Crude oil, which pointed to lower prices this week and we certainly got that as Crude fell through the $80 level and dropped 6.66% for the week. We may now see a continuation lower towards $74 on the October contract. Other markets in the energy sector were also weak and with the long term trend still being down across the board, lower prices may follow.

Currencies

The Dollar Index bounced higher from support, breaking a sequence of nine straight down weeks and ending the week ahead by 3.16%. The dollar gained against the major currency pairs for the week, bucking the recent trend.

The British Pound failed to clear resistance at $1.60 and moved lower, as did the Euro, which may have put in a significant top at $1.3333 on the 6^th August and may now resume the long term downtrend.

The dollar recovered from new contract lows against both the Japanese Yen and the Swiss Franc and may test short term resistance this coming week.

Interest rate futures

Interest rate futures were higher across the board as yields fell to record lows and new contract highs were seen. For a change, the longer end of the markets, the 30 year Bonds were the best performer of the week, advancing by 1.91%.

Kind Regards

Robert Stewart