US Equity markets made small gains yesterday ahead the of the long awaited FOMC decision on QE tapering later this evening.The Dow was up 0.2% whilst the S&P closed up 0.4% with markets supported by Microsoft”s $40 billion share-buyback plan. At this evenings FOMC Meeting I would expect the Fed to announce a $5/10 billion reduction in monthly Treasury Instrument purchases with monthly MBS (Mortgage Backed Securities) unchanged at $40 billion to still leave a net QE purchasing level of $75/80 billion per month. As well as the tapering decision, also very important will be any comments from Bernanke that might suggest a lowering of the unemployment threshold which will trigger the ending of the QE process. Previously he had said that he expected the unemployment rate to be down at 7% by the time tapering ends (currently 7.3%), but a lower unemployment rate would imply that tapering will take longer which would be a negative for the US Dollar. The Fed will also release its latest Economic Projections which will include the FOMC’s first forecast of 2016 interest rates as I mentioned yesterday.
The UK Equity market was weaker yesterday after the Government sold its stake in Lloyds Bank for £3.2 billion. The German ZEW Survey rose to a three year high of 49.6 in September versus 45.0 expected.
This morning on the economic front we have the Bank of England Minutes, followed later in the US by Housing Starts and Building Permits. Then all eyes will turn to the FOMC decision at 7.15 pm followed by Bernanke”s penultimate press conference.
December S&P 500
I have switched to the December Futures Contract in the S&P as the September contract expires at 2.35 pm on Friday. The forward roll comes at a discount of 6.2 handles which means that the price for the December S&P is 6.2 handles lower than the cash market value.
The S&P closed higher again yesterday and is now up for 12 of the last 14 trading sessions. The market is now overbought on both the Daily and Weekly charts as the most eagerly awaited FOMC Meeting in years is finally upon us this evening. I have no position in the S&P at the moment and I am going to stay that way until we get the FOMC announcement out of the way. We are now approaching the traditionally weakest 4 weeks of the year for equity markets and if we get a rally after the FOMC I will be a small seller from 1704/1710 with a 1715 stop. I have to use wider parameters given the expected volatility later. I will also be a small buyer on any dip to 1680/1684 with a 1675 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer from 1664/1670 with a 1659 stop which is the Gap left from early last week.
Euro/USD
I have had a long 1.3330 position for the last two days which did not hit my 1.3370 target profit area yesterday therefore I have decided to cut this position this morning at 1.3360 as I want to be flat ahead of tonight. If the Euro rallies after the FOMC decision I will be a seller on any rally to 1.3420/1.3450 with a 1.3470 stop.
September DAX
The DAX had a very quiet trading session yesterday as the market remains overbought and at the top of the Bollinger Band and Williams Index. Today I will raise my sell level to 8670/8700 with a 8720 stop while I will leave my buy level the same at 8500/8530 with a 8480 stop.
September FTSE
The news of the UK Government selling their stake in Lloyds Bank broke after I wrote my commentary yesterday morning and I was quickly stopped out of my 6610 long position at 6575 and I am now flat. Today I will be a small buyer on any dip to 6530/6560 with a 6515 stop. I do not want to be short the FTSE at this time.
December 10 Year Treasury Bond
No change as I am still a buyer on any dip to 123.50/123.80 with a 123.20 stop as I still look for the market to put in a bottom over the next few days in this region.
December Bund
After I posted yesterday the Bund traded up to my 13835 sell level and after a nice sell off in the afternoon I was able to cover this position at 138.05 as I want to be flat ahead of this evening. Today I will be a small seller on any rally to 138.50/138.80 with a 138.95 stop. I still do not want to be long the Bund at this time.
Gold Rolling Contract
Gold worked well overnight as the market traded down to my 1295 buy level and after a nice rally this morning I have covered this position at 1306 as, once again, I want to be flat ahead of the FOMC announcement as Gold could get very volatile later. I am going to stand aside in Gold this evening as this market could go either way in an aggressive manner and I will take another look at the market for tomorrow”s commentary. A break and close over 1350 will be very bullish while a closing break below 1290 will be very bearish.
Silver Rolling Contract
Silver traded down to my 21.50 buy level overnight and I am still long as Silver is very oversold and I will leave my stop the same at 20.95.
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