We had lively markets yesterday encouraged by the early release of the March FOMC Minutes following a premature release to Congress. Although there was arguably something for everyone in the Minutes the fact was that the message had most likely already been diluted by the poor March Employment Report. US Treasuries sold off on the comments that many FOMC members saw merit in tapering the pace of asset purchases at some point over the next several meetings, albeit highly contingent upon labor market improvements, with a view to ending them altogether by year end. Though Bond Markets were spooked (10 Year Treasuries rose 5.5 basis points), US and Global Equity markets were not. New record closing highs were recorded for both the S&P 500 and the Dow, up 1.22% and 0.9% respectively, helped by strong gains in European Equities. Euro peripheral Bond markets continue to draw support despite the lack of positive news from the Euro-Zone. They were helped by suspicions that Japan’s new QQME policy has unleashed a land grab for assets with nominal yields in excess of the 2% required for Japanese pension and life insurance companies. Although the content of the FOMC Minutes has hurt Gold, which is down $28, industrial commodity prices are mostly higher.
This morning on the economic front we have German CPI. Later at 1.30 pm we have the Weekly Jobless Claims and these will be very important as the market seeks to gauge the likelihood that the soft March Employment number was a one-off and in light of the FOMC discussions about tapering QE Bond purchases which are in turn dependent on upcoming labor market performance. The 4 Week Moving Average has edged up above 360k from around 340k two weeks ago and a fresh downturn would encourage the view the March data was a blip.
June S&P 500
As expected, the S&P made new highs and is now trading at the 1580/1590 resistance area but unfortunately the market just missed my 1563 buy level first as the FOMC Minutes were released five hours early to Congress and we never managed to close the gap From Tuesday’s close. The S&P is now very overbought on both a Daily and Weekly basis and is at the top of both the Bollinger Band and the Williams Index but as I have been saying all year until we get two large down days in a row it is very hard to be short the market as every dip keeps getting bought.
Yes, it is true that valuations are stretched at these levels but as Keynes famously said ‘markets can remain illogical longer than I can remain solvent’ and this is certainly the case with US Equities and as long as the Fed keeps its policy of $85 billion of asset purchases every month then it is very hard to fight this trend. Today the Weekly Jobless Claims are at 1.30 pm and I am going to stay flat until these Nos are released. If the Claims are weak I will be a buyer on any dip to 1570/1574 with a 1567 stop which is just below the previous high and I will be a small seller on any rally to 1589/1594 with a 1602 stop.
Euro/USD
The Euro has dropped down to my 1.3050 buy level and is trying to rally off this support zone. I will look to take profit at 1.3080/1.3100 ahead of the data at 1.30 pm and I will leave my stop the same at 1.3030. If the Euro continues to rally from here I will be a seller from 1.3170/1.3200 with a 1.3220 stop.
June Bund
The Bund continues to trade in a narrow range. I will leave my sell level the same in that I will look to sell any rally to 145.80/146.10 with a 146.30 stop. I do not want to be long Bunds at these levels.
June Dax
Just like the S&P, the Dax traded aggressively higher as the market rallied 200 points from the important 7620/7630 support zone from Tuesday. I am still flat and annoyed that I did not keep my 7630 long position from Tuesday. Today I am going to stay flat ahead of the Nos at 1.30 pm but I will be a buyer on any dip to 7750/7770 with a 7730 stop. If the Dax continues to rally from here I will be a seller from 7895/7920 with a 7940 stop.
Gold Rolling Contract
A couple of subscribers have asked me to comment on Gold. I have not traded Gold for nearly a month now. It traded higher on Tuesday on rumours that George Soros was a large buyer however the release of the FOMC Minutes yesterday has knocked it back down to 1560. It was not helped by a report that Goldman Sachs has lowered it’s forecast for Gold to $1270. The next big support level is 1520/1530 which is the low reached in late December 2011 and a break close below 1510 will be very bearish.Today I will be a small buyer on any dip to 1520/530 with a 1505 stop. Given how close we are to long term support I do not want to be short at this time.
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