Reaction to yesterday’s disappointing Chinese Q1 GDP and March Activity Data was marked by losses in equity markets, commodities and a sharp retracement in AUD/USD. European equities lost an average of 0.7% but US stocks took more of a hit later in the session with the Dow off 1.8%, the S&P down 2.3% and the NASDAQ 2.4% lower. The slight undershoot from the Empire State Fed Manufacturing Survey and NAHB Housing Index did not help the mood as did the troubling news of bombs at the Boston Marathon.
As for the currency markets, the commodity currencies came in for selling led by the AUD/USD which fell over US 2 cents, dropping from 105 before the Chinese data to under 103 before stabilising this morning. The big talking point was the crushing of Gold and Silver which fell by 10% and 12% respectively. Gold had its biggest one day fall in 10 years and renowned trader, John Paulson is believed to have lost almost $1 billion on his latest Gold bet. As margin calls went out for traders and hedge funds holding commodities these traders had to sell other asset classes in order to meet their obligations and this initially led to the large sell off in equities. Gold hit a low of $1322 overnight but has since rebounded to $1375 as I write this commentary. Amazingly the Euro remained unscathed as the carnage hit the commodity markets.
Today is very busy on the economic front. This morning we have UK CPI, PPI and the ONS House Price Index. We also have CPI from the Euro-Zone and German ZEW Survey. This is followed in the US by CPI, Housing Starts, Building Permits and Industrial Production. The Fed’s, Duke is speaking to bankers in Washington whilst Kocherlakota later speaks in Minneapolis.
June S&P 500
The S&P has now lost 45 handles in the last two days and the big question is ‘has the market topped or are buyers going to return today as has happened every time this year when the market looks ripe for a sell off?’. Yesterday’s NYSE advance/decline ratio was 137/1 with 7.3 stocks down for every one up. This was the strongest downside breadth since before the start of the rally on November 16th last year suggesting strongly that the character of the market has changed.
NYSE volume surged to 4.6 billion shares traded and fully 92% of total volume was on the downside. Normally when you get a 90% down day like yesterday the market trades sideways to higher for 1-3 days before going lower. Yesterday when Gold started to fall hard I cut my long 1574 position at 1575 and then I re-bought the market at 1564 before been stopped out at 1558 before the news of the bombs in Boston and I am still flat. It is difficult to call the market here as if Gold continues to rally so will the S&P but if Gold starts to fall hard again the stock market will follow. The fact the S&P broke and closed below 1558 is short term bearish and I will be a small seller on any further rally to 1556/1561 with a 1565 stop. I will also look to buy the market on any dip to last nights low at 1539 with a 1535 stop.
Euro/USD
The Euro worked well as the market dropped down to my 1.3040 buy level and I have taken a profit at 1.3080 overnight and I am now flat. I am amazed how strong the Euro is given how weak Gold and Silver are. Normally when Gold and Silver fall the US Dollar strengthens across the board but yesterday it only strengthened against the commodity currencies namely the Canadian and the Australian Dollars. Today, as long as the Euro remains over 1.2990, the market is still okay and I will look to reset my long position on any dip to 1.3020/1.3040 with a 1.2985 stop.Given the price action I do not want to be short the Euro at this time.
June BUND
After been stopped out of my 145.90 short position at 146.02 I went short again at 146.18. I am surprised the Bund did not trade higher and I still believe it is topping out. I will leave my stop the same at 146.30 on this position.
June Dax
The Dax worked really well yesterday as after I posted it traded down to my 7675 buy level. I took a gain at 7720 on this position and I am now flat. This morning I will look to buy the Dax on any dip to 7620/7650 with a 7595 stop which is just below last week’s low. I will also look to sell on any rally to 7740/7760 with a 7775 stop.
June FTSE
The FTSE also worked well yesterday as after I posted the market was trading at 6260 where I went long and I took a gain at 6290 before the close and I am now flat. This morning I will look to buy the FTSE on any dip to 6220/6240 with a 6195 stop. I will also look to sell the FTSE on any rally to 6280/6300 with a 6315 stop.
Gold Rolling Contract
I am a long time trading the markets and apart from 9/11 I have never seen such volatility in one contract. Gold fell $270, from a high on Thursday of $1590 to this mornings $1322 low. Looking at the chart, the next major support comes in at 1284/1300 which is the 38.2% retracement of the entire rally from the 1999 low. After I posted yesterday Gold was in free fall and I bought the market at 1390 and took a small gain at 1412 and I am now flat. Today I will look to buy the market on any dip to 1320/1340 in small with a 1275 stop. I have to use wider stops given the extreme volatility and so I will only trade in very small size.
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