Janet Yellen’s prepared testimony to the Senate Banking Committee was identical to the one given to the House two weeks ago, however it was a comment made during her Q&A that looks to have been responsible for a sell-off in the US Dollar and also boosted stocks. Yellen is quoted as saying ‘what we need to do is try to get a firmer handle on exactly how much of that set of softer data can be explained by weather and what portion if any is due to a softer outlook’.
In truth the markets fall into the category of the Fed will do the job but clearly some analysts detected signs of less than 100% commitment to maintain the pace of tapering at the next FOMC Meeting on March 19 even though the Fed Chairwoman reiterated that a change in the tapering schedule requires a significant outlook change.
Elsewhere we saw US equities draw some support from the less than feared Durable Goods Orders data which rose 1.1% versus an expected fall of 0.3%. The Dow and S&P, having been down earlier in the trading session, both closed up 0.5%. The reason the stock markets were soft in Europe in the morning was on reports that Russia was readying its fighter jets for combat which has kept its currency under pressure. The Euro was supported by Italian 10 Year Bond Yields which have fallen below 3.5% for the first time since 2005 and 5 Year Spanish Bond Yields falling below 2% for the first time since the advent of the Euro.
This morning, on the economic front, we have the UK GIK Consumer Confidence. We have no data of note from the Euro-Zone whilst at 1.30 pm we have US GDP and Pending Home Sales. At 2.55 pm we have the very important University of Michigan Consumer Confidence and the Chicago Purchasing Managers Survey.
March S&P 500
Just before I posted yesterday European stock markets went into free fall on reports that Russia was readying its fighter jets for combat. By the time I had posted the S&P was trading at 1837 on this news and in the process had left a large Gap down from Wednesday’s close. As I mentioned yesterday as long as the S&P does not close below 1836 the market is fine but a break and close below here will be bearish. I bought the S&P at 1837 and after a nice rally on the comments from Yellen I was able to cover this position at 1846 and I am now flat. The price action over the last two weeks is telling us not to be short the S&P as the market continues to rally and I would expect it to make new contract highs either today or Monday as we are still in the very seasonally strong time of the year for equity markets. Today I will be a small buyer form 1845/1849 with a 1842 stop. My only interest in selling the S&P is on a rally to 1865/1870 with a 1873 stop.
Euro/USD
The Euro just missed my 1.3630 buy level with a 1.3640 low on the Russian combat news and I am still flat. It is quite clear that the US policy makers do not want a strong Dollar as they are trying everything they can to inflate their economy. The price action in the Euro is again telling you to buy this market on dips. Today I will raise my buy level to 1.3665/1.3695 with a 1.3635 stop which is just below yesterday’s low. I still believe the Euro will at least test the key 1.3820/1.3850 resistance level and today I will be a small seller in this region with a 1.3870 stop.
US Dollar Index
Amazingly the Dollar Index is still trading at my 80.20 buy level and has hardly moved away from this price since I put on the trade last week. I will leave my stop the same at 7985 and if I am stopped out I will be a more aggressive buyer on any dip to 79.20/79.50 with a 78.80 stop. The major support level for the Dollar Index is at 78.90 and as long as we stay over this level the Dollar is fine but a break and close below 78.90 will be extremely bearish.
March DAX
By the time I posted yesterday morning the Dax was in free-fall with the market trading at 9520 and well below the parameters that I had planned to trade at and as a result I did not trade the market yesterday. Having made a low at 9480 the market turned around and managed to close over 9550. The 9660/9700 is key resistance for the market and the Dax is finding it very difficult to get through this key area. It should be noted that any bad news out of Russia is very bad for the Dax as Germany is extremely exposed to the Russian economy. Today my only interest in trading this market is to sell any rally to 9660/9690 with a 9720 stop. I do not want to be long the Dax at this time.
March FTSE
Just before I posted yesterday I was stopped out of my 6770 long position at 6745 and I am now flat. The FTSE this morning is a lot higher and is testing the key 6800 area as I write this commentary. I have no real feel for the FTSE at these levels and my only interest today is to be an aggressive seller on any rally to 6850/6880 with a 6905 stop. I will also be a small buyer on any dip to 6740/6760 with a 6725 stop.
Dow Rolling Contract
The Dow plan worked really well yesterday as just as I posted it was trading in the middle of my buy range at 16120. The market had a nice rally off this key support enabling me to cover this position at 16190 and I am now flat. The Dow is now approaching last Monday’s high at 16310 and I would expect it to break this level either today or early next week. Today I will be a small buyer on any dip to 16200/16240 with a 16170 stop. I still do not want to be short the Dow at this time.
March BUND
The Bund has continued its expected march higher over the last few days. It is overextended at these levels but I still do not want to be short the market as the price action is still very bullish. Today given how over extended the Bund is trading I will leave my buy level the same at 144.20/144.50 with a 143.95 stop
Gold Rolling Contract
No change as I am still a seller on any rally to 1340/1346 with a 1352 stop. My only interest in buying Gold is on a dip to 1307/1314 with a 1299 stop.
Silver Rolling Contract
No change as Silver is still struggling to move higher. It has key support from 20.65/20.95 and today I will still be a buyer in this region with a 20.40 stop.
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