Markets traded with a continued risk averse tone yesterday reflected in a further significant move higher in the VIX Index which rose over 9% for the second day in a row and now stands at 18.5 from a low of 12 four weeks ago. The US Equity markets fell for the third day in a row and the futures markets are trading lower again this morning. The Nikkei got hit for 5.6% as the Yen strengthened to its strongest level in two months and has now risen over 9% versus the US Dollar in that time, to stand at .9400 on concerns that the Central Banks will start tapering monetary stimulus.
US Bond yields closed well higher and the 10 Year Bond is now at 2.29% following a mediocre Bond Auction, with the bid-cover ratio down on recent averages and the lowest in ten months. The subsequent back up in yields has nevertheless failed to support the US Dollar with the continued Euro resilience seen as the main factor as the Euro trades back to 1.3360. This is a huge change from recent equity weakness where the US Dollar is normally the beneficiary and not the Euro.
Equity markets are not helped this morning by the World Bank cutting global growth estimates to 2.2% from 2.4% previous.
Today is another important day for economic data. This morning the ECB publishes its Monthly Report whilst later at 1.30 pm we get the latest Weekly Jobless Claims and Retail Sales from the US.
June S&P 500
The S&P having opened near its highs at 1637 spent the rest of the day falling to close on its lows. As I said yesterday a break and close below 1620 will lead to a test of 1600 but I did not expect the market to trade this low so quickly as the whole rally from last Thursday to 1648 has been completely retraced. The Fed will have a very interesting meeting when they meet next week as they try to absorb what has happened in the last month. The McClellan Oscillator, having closed at -234 on Tuesday, is now approaching the -330 level from last Thursday and for this reason I have bought the S&P this morning at 1598 in small size as we now have a decent Gap from last nights close coupled with oversold market conditions. I will leave my stop at 1592 which is just below the Gap left from the beginning of May and if I am stopped out I will use and five handle rule from whatever low is put in with a stop just below this new low to rest my long position. I do not want to be short at this time as next week is the contract expiration for the June contract and traditionally whatever low is put in on the Thursday/Friday before this expiration generally leads to a nice rally ahead of this expiration.
Euro/USD
In contrast to every sell off in equities instead of the US Dollar strengthening it is weakening across the board this morning especially against the Yen. The Euro is very overbought and is at the top of the Bollinger Band but interesting the Williams Index has started to turn down. The Euro traded up to my 1.3360 sell level yesterday and I have just been stopped out for a small loss at 1.3380. The Euro is finally reaching levels where I am interested in putting on a more macro short position as I have been patiently waiting for the Euro to trade up to the 1.3400 major resistance area. Today I will be a small seller on any rally to 1.3380/1.3420 with a 1.3440 stop. I do not want to be long at this time.
The Dax plan worked well yesterday as we traded up to my 8230 sell level and I covered this position just before the close at 8110 and I am now flat. The Dax is a lot lower this morning and is trading at 7985 as I write this commentary. This 7970/8000 is important support and I am a small buyer here with a 7945 stop. If I am stopped out of this long position I will be a more aggressive buyer in front of 7880 with a 7860 stop.
The FTSE traded down to my 6270 buy level very late last night and I have been stopped out of this position overnight at 6220. The FTSE is very over-sold here and I have reset my long position at 6210 with a 6180 stop which is just below the overnight low. The Williams Index has started to turn up which has encouraged me to reset my long position.
September BUND
When the equity markets started to turn down I covered my short 142.75 position at 142.65 and I am now flat. I am going to stand aside here and observe unless the Bund trades back to 142.60 in which case I will be a buyer with a 142.40 stop which is just below yesterdays low.
June Nasdaq 100
The Nasdaq has traded down to my 2210 buy level overnight and I am now long with the same 2195 stop which is just below the overnight low.
June Nikkei
For a change I was lucky here as the Nikkei dropped down to my 12900 buy level after the US opened and the the market rallied when the Yen started to weaken against the US Dollar and I was able to cover this position at 13020 for a small profit. The market is now rolling to the September contract at a premium of 140 points and I have bought the Sept Contract at 12650 which is equivalent to 12510 in June. I will leave at 12400 stop on this September 12650 long position.
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