Equity markets closed the day sharply higher after Larry Summers withdrew his nomination to be the next Fed Chairman but they were well off their intra day highs. The Dow closed up 0.8% whilst the Nasdaq closed lower on the back of the weakening Apple price which lost another 3% on top of the 5.5% hit last Friday. A fall in US Bond yields helped drive the US Dollar lower as the market waits for news from the two day FOMC Meeting which begins this afternoon.
The reversal in US Equities began around mid-day after an article by Wall Street journalist and Fed watcher, Jon Hilsenrath, which highlighted the potential dilemma the Fed faces this week in publishing, for the first time, the 2016 economic and interest rate projections. If these show that the economy is expected to be performing somewhere close to trend and with something close to full employment then, Hilsenrath asks, how can that be reconciled with a rate projection that is not substantially higher that the 1.15% rate for 2016 currently implied by the Fed Funds Futures market? Doubtless the Fed will try and certainly I seriously doubt they will want to say anything to put upward pressure on bond yields. One possibility, of course, is that the Fed formally lowers the unemployment rate threshold which they have set as a target before they contemplate a first tightening of the QE Programme.
This morning on the economic front we have UK PPI and CPI followed by the ZEW Survey from Germany. Later at 1.30 pm we have US CPI and the NAHB Housing Market Index.
September S&P 500
The S&P closed higher for the 11th day out of the last 13 but well off it’s intra day highs. After I posted yesterday morning the S&P was trading in my sell zone at 1708 and after a nice sell off after the New York open I was able to cover this position at 1700 and I am now flat. I cannot see the market selling off too much ahead of the FOMC announcement tomorrow evening and so today I will be a small buyer on any dip to 1689/1693 with a 1687 stop. I will also be a small seller on any rally back to 1705/1710 with the same 1713 stop.
Euro/USD
The Euro traded down to my 1.3330 buy level and I am still long. I still like this market as long as we can hold the 1.3290 support level. I will leave my stop the same at 1.3290 and I will look to take profit on any rally back to the 1.3370/1.3400. I will also be a small seller on any 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 traded up to my 8620 sell level and after a small sell off late on I was able to cover this position at 8595 and I am now flat. The reason I have covered the Dax is the fact we closed at a new all time high. Today I will be a small seller on any rally to 8640/8670 with a 8690 stop while I will also be a buyer on any dip to 8490/8525 with a 8475 stop.
September FTSE
The FTSE has traded down to my 6610 buy level this morning and I am now long with a 6575 stop. If I am stopped out I will be a more aggressive buyer on any dip to 6525/6550 with a 6490 stop.
December 10 Year Treasury Bond
No change as I still want to buy market on any dip to 123.50/123.80 with a 123.30 stop.
December BUND
Today I will be a seller from 138.35/138.60 with a 138.75 stop. I do not want to be long the Bund as this time as it has broken some long term technical support over the last two weeks.
Gold Rolling Contract
Gold worked well yesterday as the market traded down to my 1310 buy level before having a nice rally and I was able to cover this position at 1320 and I am now flat. Today I will lower my buy level to 1290/1296 with a 1285 stop. I will also lower my sell level to 1325/1335 with a 1342 stop.
Silver Rolling Contract
The Silver plan also worked as shortly after I posted the market traded down to my 21.70 buy level before having a nice rally and I was able to cover this position at 22.15 and I am now flat. Silver is getting very oversold again and today I will be a buyer from 21.30/21.60 with a 20.95 stop.
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