In her first public speech as Chair of the Fed, Janet Yellen spoke yesterday on ‘What the Federal Reserve is doing to promote a stronger job market’. Her talk caused headlines across news screens suggesting that she was implying that the Fed would maintain extraordinary stimulus for longer or whilst, as she said ‘the economy is still considerably short of the Fed’s goals and that they will take time to reach’. As the wires reported, her speech touched on the very human costs of the wider economic troubles drawing on some specific personal references including the costs of unemployment, strained marriages and exhausted savings.
It was an astute piece that has left observers, for now, with the impression she might have been back-tracking from her post March 20 FOMC Meeting statement when she said that the Fed Funds Rate would start to rise 6 months after QE had finished. The stock markets rose on this news whilst both the US Dollar and Treasury Yields fell, supporting investor confidence.
Euro-Zone March headline inflation came in below expectations, at +0.5% versus the +0.6% expected, for its lowest rate since 2009 thus increasing speculation that the ECB might finally cut rates again when it meets on Thursday.
This morning on the economic front we have UK PMI Manufacturing at 9.30 am.This is followed at 10.00 am by the Euro-Zone PMI Manufacturing and the Unemployment Rate in which both of these data releases will be closely watched by the markets especially ahead of the ECB Meeting. At 1.30 pm we have the US PMI followed at 3 pm by the ISM Manufacturing.
June S&P 500
Yesterday was a solid up day for the June S&P as the market yet again left another ‘Open Gap’, this time from 1850.50 which was Friday’s close to 1859.50 which was yesterday’s low in the Chicago trading session. March saw the US market open with an upward Gap in 15 out of the 21 trading days in the month with most of these gaps closed by day’s end or soon after. Yesterday was slightly different than the behavior over the past week or so in that the S&P did not weaken appreciably by session’s end. As I mentioned yesterday this is a seasonally strong time of the year, however the first trading day of each month so far this year has seen the market being hit hard but in contrast to this action the S&P has been up in 12 of the 13 Tuesday’s so far.
Yesterday the S&P spiked higher on the remarks from Yellen and the market traded up to my 1865 sell level. It then tried to follow the Dax lower and when the Dax stabilized the S&P rebounded. I covered my short position near the close at 1861 as I did not want to have a position overnight and I am now flat. Today I will raise my buy level to 1853/1858 with a 1849 stop which is just below the Open Gap left from Friday. My only interest in selling the S&P is in small size on a rally to 1878/1882 with a 1885 stop. I still believe the the market will trade up to 1920/1940 over the next few weeks before it runs into trouble.
Euro/USD
The Euro rallied as expected but unfortunately just missed my buy level before trading higher and I am still flat. Interestingly the Euro managed to close back above key 1.3760 resistance level as yet again it made a trading low at the bottom of the Bollinger Band and Williams Index. Today I will raise my buy level slightly to 1.3720/1.3750 with a 1.3695 stop which is just below yesterday’s low. As we have so much important economic data due today I am expecting some two way volatility but I still do not want to be short the Euro at this time which has proved to be the correct view so far this year.
US Dollar Index
No change as I am still long from last Friday at 80.20 with the same 79.80 stop. The Dollar needs to break and close over 80.60 for the market to turn bullish.
June DAX
Yesterday was another great example of how well the Bollinger Band and Williams Index work as indicators, as the DAX had a nice sell-off after opening strongly which enabled me to cover my 9645 short position from yesterday morning at 9595 and I am now flat. As I mentioned over the last few weeks the 9640/9670 resistance level is key and if the Dax can break and close over this level for 2/3 days it will be very bullish and I will then look to set up a long position for 9750/9780 and possibly as high as 10200. Today I will again be a small seller on any further rally back to 9640/9670 with a 9685 stop. Given how overbought the Dax is trading I do not want to be long the market at this time.
June FTSE
Unfortunately after I posted yesterday morning the FTSE traded down to my 6565 buy level before quickly stopping me out of this position near the close at 6540 and I am now flat. The market is again trading at this key 6560 resistance level and eventually I expect this level to be broken. Today I will be a small buyer from 6530/6555 with a 6495 stop which is just below yesterday’s low. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow is still the best performing US Index over the last month as I look for the market to break the key December 31 high at 16589 which will confirm a new bullish breakout for this market. If and when this happens I will then look for it to trade as high as 17200/17400 over the next few weeks After I posted yesterday morning the market just missed my 16330 buy level before trading higher and I am still flat. As I have mentioned over the last while the 16250 is key support for the Dow and as long as the market can stay over this level the market is still bullish. Today I will raise my buy level to 16380/16420 with a 16345 low which is just below yesterday’s low. I still do not want to be short the Dow at this time.
June BUND
Shortly after I posted yesterday morning I was stopped out of my 143.60 long position from last Friday at 143.25. The Bund subsequently traded down to my 143.10 buy level and after a nice rally I was able to cover this position near the close at 143.45 and I am now flat. Today I will again be a small buyer on any dip to 142.90/143.10 with a 142.75 stop. As long as the Bund can stay over 143.00 I will not look to short the market but a break and close below 142.80 will see me start to look to set up shorts again.
Gold Rolling Contract
Gold continues to trade heavy with the market spiking lower on Yellen’s remarks and thus stopping me out of my 1292 long position for a small loss at 1282 and I am now flat. It managed to close just below its 100 Day Moving Average. Gold is still oversold with the next good support coming in at 1261 and today I will again be a small buyer on any further dip to 1265/1272 with a 1258 stop. Given how oversold it is trading I do not want to be short the market at this time.
Silver Rolling Contract
Silver is continuing to behave better than Gold. I am still long from early last week at 19.90 and I will again leave my stop at 19.40. If I am stopped out of this position I will be a more aggressive buyer on any further dip to 18.80/19.10 with a 18.50 stop.
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