Equity markets all closed lower yesterday as the US Government partial shutdown continued with no end in site. Concerns are being voiced that the shutdown will have negative effects on the US economy and global growth. Fears are also mounting that the ongoing standoff will jeopardise any resolution to the separate debt ceiling issue, which the US Treasury says will be hit on October 17, leading to the Government being unable to meet its debt servicing obligations which is a technical default. Standard and Poors have said that if debt servicing obligations were not met then the US Sovereign rating would be lowered from its current AA+ stable outlook to a selective default where it would stay until all obligations were met. This would be a disaster for the US Government and in theory could significantly raise borrowing costs. President Obama has put off a trip to Malaysia next week and has invited Republicans and Democrats to the White House today to talk on these issues.
Meanwhile FOMC voter, Eric Rosengren from Boston, said yesterday that possible disruption in the collection of Government statistics could further delay the ‘tapering of the Fed’s $85 billion bond buying programme. ECB President Dragi warned that if the US shutdown was protracted it would certainly pose a risk to the recovery in the US and the rest of the world. The ADP Employment report released yesterday was disappointing showing private jobs growth of only 166k versus the 180k expected.
This morning on the economic front we have UK, German and Euro-Zone PMI Services. We also have Euro-Zone Retail Sales and this is followed at 1.30 pm by the US Weekly Jobless Claims, Factory Orders and the ISM Non Manufacturing Composite. The Fed’s Williams and Powell are both due to speak on the economy later this afternoon.
December S&P 500
The S&P has now closed down 8 of the past 10 trading sessions since the market made its high on September 18. However today’s new low in the Dow was not confirmed by the S&P leading to a possible positive divergence between the two markets for stocks going forward.
The S&P plan worked well yesterday as the market traded down to my 1674 buy level before having a nice rally and I was able to cover this position at 1681 and I am now flat. I still like the S&P as I really believe we will get a Budget Deal and today I will be a buyer on any dip to 1675/1680 with a 1672 stop which is just below yesterday’s low. As I said yesterday as long as the S&P can hold over 1668 the market is fine but a break and close below 1668 will be very bearish. I still do not want to be short the market at this time.
Euro/USD
The Euro just missed my 1.3480 buy level before it took off again as every short position keeps getting squeezed. I still believe the Euro will test the 1.3700/1.3800 resistance levels first before attempting to trade lower. I am also impressed that it has closed over 1.3550 and today I will be a small buyer from 1.3540/1.3570 with a 1.3525 stop. My only interest in selling the Euro is from 1.3670/1.3700 with a 1.3720 stop.
December DAX
The Dax plan also worked well yesterday as the market traded down to my 8600 buy level before having a nice rally and I was able to cover this position at 8640 and I am now flat. However it is trading heavily up at these lofty levels and today I will be a small seller from 8655/8680 with a 8705 stop. I will also look to sell the market if we break 8590 with a 8620 stop.
December FTSE
I was very unlucky with the FTSE yesterday as the market was in my buy level when I wrote the commentary but unfortunately the market was trading higher by the time I posted. Yet again the Bollinger Band and Williams Index gave a fantastic buy signal as the FTSE is now 80 points higher. I still like the market especially when compared to the Dax. Today I will raise my buy level to 6370/6400 with a 6350 stop which is just below yesterday’s low.
December 10 Year Treasury Bond
This market has been very quiet over the last two weeks so I don’t want to chase it higher and for this reason I will leave my buy level the same at 125.30/125.60 with the same 125.10 stop.
December BUND
Having almost been stopped out of my 140.20 long position yesterday the Bund had a nice rally off the 139.93 low and I was able to cover my long position at 140.40 and I am now flat. I still like the Bund as I still believe the European crisis is going to erupt again sooner than many people think and today I will be a buyer on any dip to 139.80/140.10 with a 139.60 stop.
Gold Rolling Contract
My cautious approach to Gold in waiting to see if it could close for a second day below 1290 was warranted as it had a $35 rally off this very important inflection point. Today I will be a small buyer on any dip to 1300/1310 with a 1288 stop. My only interest in setting up short Gold positions is if we close below 1290 for two days in a row.
Silver Rolling Contract
Silver also had a very nice rally yesterday and in the process managed to close back above 21.50. Today I will be a small buyer on any dip to 21.40/21.70 with a 21.25 stop. I do not want to be short Silver at this time.
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