The Dow closed at its highest level in five years yesterday amid signs that the worlds largest economy is improving. US Durable Goods Orders climbed in January by the most in a year whilst Pending Home Sales increased more than forecast. Ben Bernanke in his testimony to the House yesterday said recent increases in some interest rates may signal the US Economy is gaining strength. With the Housing market looking pretty good and this is providing a huge catalyst to consumers in terms of wealth effect thus propelling stock markets higher. The European markets were helped late on by comments from Dragi who signaled that the ECB has no intention of tightening Monetary policy anytime soon with Inflation projected to significantly undershoot its 2% target next year. While the ECB’s balance sheet may shrink naturally as confidence returns to financial markets and banks repay emergency loans, policy makers are far from considering an exit from monetary stimulus.
This morning on the economic front we have German Unemployment Data and Euro-Zone CPI whilst later in the US we have the Weekly Jobless No’s, GDP, Chicago Purchasing Managers Survey and NAPM.
March S&P 500
Well I said this week had the potential to whip saw all traders and certainly that is what happened yesterday as the Dow powered to a new 5 year closing high. The S&P and Nasdaq are both lagging but it is hard to find a case for the Bears after yesterdays strong reversal. The S&P quickly traded up to my 1503 sell level before stopping me out at 1508 and I am now flat. I respect the fact that the S&P has closed back over the important 1512 level. Today I am a small buyer on any dip to 1511/1516 with a 1507 stop. I am only interested in going short on any further rally to 1529/1533 with a 1535 stop. A break and close above 1535 will be very bullish as I will then look for the market to trade up the next very important resistance at 1560/1580. Remember with GDP due at 1.30 pm the market has the potential to have a substantial movement after.
Euro/USD
As expected the Euro has had a strong rally off the important 1.3000/1.3030 support zone and it is good that we don’t want to be short the Euro at this time but unfortunately the market just missed my 1.3050 buy level and I am still flat. Today I still like the Euro and I will raise my buy level to 1.3090/1.3120 with a 1.3070 stop on any long position.
GBP/USD (Cable)
Cable worked well yesterday as I was able to buy the market at 1.5110 and I have taken a gain overnight at 1.5190 and I am now flat. I still like Cable as the market is still very oversold but at least the Williams Index is starting to turn up. Today I will look to reset my long position on any dip to 1.5130/1.5160 in small with a tight 1.5110 stop as I look for the market to trade up to 1.5300 over the next few days.
March BUND
The Bund had a consolidating session yesterday as it holds on to the gains made over the last week. Today I will raise my buy level to 144.30/144.60 with a 144.20 stop. I still do not want to be short at this time.
March DAX
The Dax has had a nice bounce off the 7600 level. The next main resistance level is the 7840/7870 area and I would expect the Dax to test this area over the next week. Today I am a buyer on any dip to 7670/7700 with a 7650 stop.
March FTSE
I was stopped out of my 6320 short position at 6345 overnight and I am now flat. I am going to stay flat and see how the FTSE trades over the next 24 hours.
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