Markets re-opened last night for this crucial FOMC week with news that Larry Summers has withdrawn his name from the candidature for the top Fed post. In a published letter following a call to President Obama, Summers wrote ‘I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or ultimately that of the nation’s ongoing economic recovery’.This news is almost as important as the FOMC decision on Wednesday with markets quick to conclude that Janet Yellen is now a shoe-in for the position and she is likely to follow the same policies as Bernanke. Perceptions that a Summers led Fed would more quickly exit unconventional policy settings than one led by Yellen has offered support for the US Dollar in recent weeks and these moves are now in the throes of being unwound. The Summers move led to a huge rally in equity and bond markets overnight and this morning, coming as it does along side the weekend news that Russia and the US have reached agreement on a plan to disarm Syria of its chemical weapons.
This morning on the economic front we have the Rightmove UK House Price Index followed by Euro-Zone CPI and Unemployment. Later from the US we have Empire Manufacturing and Industrial Production.
September S&P 500
The S&P has now closed up for 10 of the last 12 trading sessions as the market continues to trade in an overbought manner on both the Daily and Weekly Charts despite the very weak economic data that we have had over the last two weeks. This theme continued on Friday with the weaker than expected Retail Sales and Univ of Michigan Survey. The Larry Summers news over the weekend as sent the S&P to a new high this morning as the market gapped higher on the open last night and in the process made a new high of 1709.75. This market has now got so much good news priced in that the risk reward is now to go short into the FOMC meeting on Wednesday especially if we are trading near present levels.
Today I am a small seller from 1705/1710 with a 1713 stop. If I am stopped out of my short position I will be a more aggressive seller on any further rally to 1719/1723 with a 1726 stop. I will also be a buyer if the market closes this up gap this morning from 1689/1693 with a 1686 stop.
Euro/USD
The theme of ‘I do not want to be short the Euro at this time’ continued again on FrIday as the market is now almost three hundred points higher from the lows made last Friday week. It traded down to my 1.3260 buy level and after a nice rally late on Friday I was able to cover this position at 1.3320 and I am now flat. Today I will be a small buyer on any dip to 1.3300/1.3330 with a 1.3280 stop. I will also be a seller on any further rally to 1.3410/1.3440 with a 1.3460 stop which is just above the highs made three weeks ago.
September DAX
The Dax just missed my 8440 buy level on Friday with a 8460 low before following the S&P higher overnight. Indeed the Dax has gapped over the 8600 level this morning and like the S&P is also overbought and at the top of the Bollinger Band and Williams Index. Today I will be a small seller on any rally to 8620/8650 with a 8670 stop. I do not want to be long the Dax at this time.
September FTSE
The FTSE also just missed my buy level on Friday before also having a large move higher this morning. Today I will be a seller from 6670/6700 with a 6720 stop. I will also be a small buyer on any drop to 6560/6590 with a 6550 stop.
December 10 Year Treasury Bond
The low that I have been looking for in this market may have happened last week as we had huge rally in the Bond market following the Larry Summers news. I have covered my 123.10 long position at 124.50 this morning and I am now flat. Today I will look to reset my long position on any dip to 123.50/123.80 with a 123.30 stop.
December BUND
After I posted on Friday the market was trading in my sell zone at 137.90 however I was quickly stopped out of this position at 138.20 and I am now flat. I am going to stand aside here and take another look at the Bund tomorrow as I want to see how this market trades for the next 24 hours before making my next trade.
Gold Rolling Contract
Gold just missed my 1306 buy level due to my late posting on Friday before having a nice rally and I am still flat. Today I am still a seller on any rally to 1337/1345 with a 1351 stop whilst I will also be a small buyer on any dip to 1300/1310 with a 1298 stop.
Silver Rolling Contract
Silver worked really well on Friday as after I posted Silver was trading at 21.60 which was right in the middle of my buy zone. After a nice rally before the close I was able to cover this position at 22.20 and I am now flat. Silver has been trading wildly this morning and today I will be a small buyer on any dip to 21.40/21.70 with a 21.20 stop. I still do not want to be short Silver at this time.
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