Notwithstanding the remnants of the Mexican standoff between Russia and the Ukraine, global risk markets did an about turn yesterday, with stocks higher in Europe and the US whilst Oil and Gold prices fell along with the US Dollar. The US VIX (Volatility Index) fell over 10% as the Dow and S&P each rising 1.4% with the latter again closing on a new record high. Russian and Ukrainian stock markets staged a partial rebound after heavy falls the day before.
President Putin looks to have ruled out further military intervention saying that troops are there to protect it’s major Black Sea Russian military installations on the Crimean Peninsula. Putin also offered half an olive branch by saying he will engage with the new political administration, ruling out any political future for deposed former Ukrainian President Yanukovych. Meanwhile US Secretary of State John Kerry visited Kiev, offering Ukraine loan guarantees as Russia looked to be increasing financial pressure on the Ukraine by saying they owed Russian energy plant Gazprom $2 billion.
I would caution that the Ukraine situation has not yet been resolved and that risk asset markets remain vulnerable to any renewed deterioration in news flow or rhetoric coming out of Kiev or Moscow.
This morning on the economic front we have Euro-Zone GDP followed at 1.30 pm by the US ADP Employment change which will be closely watched ahead of Friday’s Non Farm Payrolls. Later this afternoon the Fed will release its Beige Book which again will have the potential to move the markets depending on what is reported.
March S&P 500
The S&P made yet another closing high yesterday and in the process has left one of the largest Gaps in the market that I have seen for many a year. The Open Gap runs from Monday’s close at 1844 to the 1862 low after the open yesterday afternoon. If this Gap is not filled by Friday we will then have a ‘breakaway Gap’ which is potentially very bullish.
Whilst the S&P made a new closing high the Dow still has nearly 200 points to catch up on its December 31st high of 16589 so there is still the possibility that if the Dow does not make a new high we will have what is called ‘negative divergence’ between the two main US Indices which, in contrast, is potentially very bearish.
After I posted yesterday morning the S&P went straight up to my 1866 sell level before stopping me out of this position at 1871 and I am now flat. The next resistance level runs from 1884/1890 and I will be a seller here with a 1896 stop. I have to use wider stops given the volatility. I am reluctant to put in a buy level as I want to see how the S&P handles this open Gap and my only interest in buying the market is on a dip to 1854/1858 with a 1851 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1845 with a 1840 stop.
Euro/USD
After I posted, the Euro traded lower but unfortunately just missed my 1.3720 buy level before trading higher and I am still flat. Amazingly, given the volatility in Commodity and Equity markets, the currency markets have been very quiet so far this year. Today I will lower my buy level in the Euro to 1.3660/1.3690 with a 1.3640 stop. My only interest in selling the Euro is still on a rally to 1.3820/1.3850 with a 1.3870 stop.
US Dollar Index
The US Dollar is still finding it difficult to break the key 80.00 support. Today I will raise my buy level to 79.80/80.10 with a 79.55 stop.
March DAX
Just after I posted yesterday morning the Dax was trading at 9450 before roaring ahead after peace returned to the Crimean Peninsula. It traded up to my 9520 sell level before quickly stopping me of this position for a small loss at 9545 and I am now flat. I was surprised at how easily the Dax was able to break back above the 9460/9500 resistance area and this level will now act as support on any sell-off that may ensue. Today I will be a buyer from 9500/9530 with a 9475 stop. I do not want to be short the Dax at this time.
March FTSE
As expected the FTSE traded higher yesterday but unfortunately just missed my 6720 buy level before trading higher and I am still flat. Today I will raise my buy level to 6720/6750 with a 6695 stop on any long position I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow has also followed my road map by trading a lot higher over the last week. Unfortunately I have not been able to get a long position on board but at least I have not been short and I am still flat. The Dow has now broken well above the 14 year trendline at 16210 that I have mentioned over the last couple of weeks and any sell off should be contained initially by this now important support. Even though the Dow is trading at the top of its Bollinger Band and Williams Index I still do not want to be short the market and today I will raise my buy level to 16270/16310 with a 16240 stop on any long position.
March BUND
The Bund is trading lower this morning and is testing the key 144.40 support level. Today I will be a small buyer from 144.20/144.40 with a 143.95 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold had a very quiet trading day as its tried to consolidate last Monday’s gains on the threat of war in Ukraine. It has very strong resistance from 1350/1360 and today I will lower my sell level to this area with a 1365 stop. I still do not want to be long Gold at this time.
Silver Rolling Contract
No change as I am still long from yesterday at 21.20 with the same 20.75 stop.
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