The prospect of the Fed beginning to taper its QE Programme in December seems to be back on the cards, at least as far as the markets are concerned, because US data was solid yesterday. The Dow closed down 0.3% whilst European Equities also ended the day lower. US Treasury Yields were higher, Gold fell and the US Dollar was stronger. All consistent with a preparation for the beginning of Fed normalisation, not that it means policy tightening, of course.
Global PMIs have been improving or at least stabilising .This stability has been a positive surprise for markets. The US ISM released yesterday was very strong at a solid 57.3 when it was expected to pull back. The details were also good with employment and orders higher but inventories and prices lower. Whilst contingent on the US Payroll data on Friday which is expected to be a respectable 185k expectations for a December start to QE tapering are back on the table. Interestingly, whilst Gold prices fell Oil prices rose. If tapering begins then, with upward economic momentum, there should be less negative pressure for growth assets.
The UK data released yesterday added to the positive tone with PMI moving to very high levels at 57.3 and whilst the European numbers are mixed they are predominantly improving, with the headline Euro-Zone PMI increasing to 51.6 versus 51.5 expected.
This morning on the economic front we have UK PMI Construction and Euro-Zone PPI. Later at 2.45 pm we have the US ISM from New York.
December S&P 500
The S&P plan worked well yesterday as, after Chicago opened, the market traded up to my 1808 sell level with a 1810 high before trading lower into the close and I was able to cover my position at 1801 and I am now flat. This is the second trading day in a row that the S&P has sold off into the close which is a definite trend changer after it had finished higher for eight straight weeks in a row This 1800/1812 is proving to be a key area going forward as I am looking for the market not to break this 1815 level initially as we need a sell-off to at least 1760/1765 to correct this overbought condition before trading higher. Today I will lower my sell level to 1806/1810 with the same 1815 stop. The market just missed my 1797 buy level yesterday and today I will lower my buy level to 1790/1794 with a 1788 stop.
Euro/USD
The Euro broke lower just after I wrote yesterday’s blog and was trading at my 1.3535 buy level as I posted. I am still long and I will raise my stop to 1.3515 which is just below yesterday’s low. I will also be a seller on any rally to 1.3580/1.3610 with a 1.3625 stop.
December DAX
I am trading markets a long time now and I cannot remember a situation where we have the Dax trading at the top of the Bollinger Band and Williams Index while the FTSE, in contrast, is trading at the bottom of the Bollinger Index and Williams Index. Today I have gone short the Dax/FTSE spread at 2818 in small size with a wider 2878 stop. This spread was trading at just above 1600 in early September. I will still be a small seller of the Dax at 9440/9460 with a 9475 stop.
December FTSE
Just before I posted yesterday the FTSE broke lower and as I mentioned above we are now trading at the bottom of the Bollinger Band and Williams Index. Today I will be a small buyer on any dip to 6525/6550 with a 6510 stop. Given how oversold this market is I do not want to be short at this time.
Dow Rolling Contract
This 13 year trendline is so far proving formidable to break. I covered half of my short 16140 position at 16040 and I will leave a 16080 stop on the other half as I still look for the Dow to trade lower over the coming weeks.
December BUND
Shortly after I posted yesterday I was stopped out of my long 141.55 position for a small loss at 141.35. The Bund proceeded to trade lower to my 141.10 buy level and I am now long with a 140.85 stop on this position.
Gold Rolling Contract
Just as I posted yesterday morning Gold started to drop. I bought it at 1235 and I am glad that I had a tight stop as I was quickly stopped out of this position at 1228 and I am now flat. Gold is oversold and today I will raise my buy level to 1198/1212 with a wider 1178 stop. Gold needs to break back above 1258 for the market to stabilise otherwise the risk of an acceleration lower remains.
Silver Rolling Contract
Silver followed Gold lower yesterday and after I posted I was quickly stopped out of the rest of my 19.60 long position taken last week for a breakeven. Silver then traded down to my 19.25 buy level and I am now long again with a 18.85 stop on this position. Silver is trading at the bottom of the Bollinger Band but not the Williams Index this morning and the risk remains that Silver could also accelerate lower before making a more meaningful bottom.
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