Yesterday was another day where there was no particular trigger but there was a very large downward move in equity markets, led by US Bio-tech stocks. The NASDAQ and S&P 500 closed down 3% and 2% respectively. This filtered through to other markets with US 10 Year Yields lower, surprisingly the US Dollar was also lower and Gold was higher whilst the Japanese Yen continued to be the outperformer of the G10 Currencies.
Sharp moves on little news are always a little disconcerting especially as US economic data was good and the Fed are still leaning towards the dovish side. We are told that the equity sell-off is due to position unwinding and as it continues there are margin calls which are pushing the markets lower. If this is so then it may not last long but the important guide is likely to be the earnings season which kicks off in full swing next week. Yahoo reports on Tuesday and this is the first of the major tech stocks to release its earnings and these tech stock results will be more important than usual.
US Jobless Claims hit a seven year low of 300k versus 320k expected which was a very impressive drop which augurs well for the Labour market particularly after the better NFIB and JOLTS series earlier in the week. In Europe the return to the Bond market by Greece went very well. They sold Euro 2 billion for a term of 5 Years at a yield of 4.95% on very strong demand.
This morning on the economic front we have German CPI. This is followed at 1.30 pm by US PPI whilst at 2.55 pm we have the very important University of Michigan Survey.
June S&P 500
Little did I realise that when I posted yesterday saying that markets are always very difficult to trade when we are about to change direction, that the S&P would fall over 40 handles from 3.30 pm onwards. Yesterday was one of the most brutal trading sessions in a very long time and the fact that we closed below the critical 1830 support level is very important. It looks like the ‘sell in May mantra’ has come a month early this year. If the S&P cannot close back over 1836 either today or Monday it opens up the possibility that we will trade down to 1810 and then the next major support which comes in at 1770/1785.
I was fortunate yesterday as by the time I posted the update, the S&P was trading at the bottom of my buy level at 1861 and after nice rally when the Jobless Claims were released I was able to cover this position at 1866 and I am now flat. I did not do another trade in the S&P as I just watched the action in amazement. The price action since last Friday is telling me to start to look to set up a bearish macro position. Today I will be a small seller from 1833/1840 with a 1845 stop. I do not want to be long the market at this time and I cannot remember the last time that I said this about the S&P.
Euro/USD
The Euro plan worked out well yesterday as the market rallied after the Greek Auction was reported to have been over subscribed and I was able to cover my long 1.3830 position at 1.3895 and I am now flat. The Euro has important resistance from 1.3950/1.3980 and today I will be a small seller in this region with a 1.4020 stop. I will also look to buy the market on any dip to 1.3830/1.3860 with a 1.3810 stop.
US Dollar Index
No change as I am still a buyer on any further dip to 78.95/79.25 with a 78.75 stop which is just below the lows made last November.
June DAX
The incredible volatility for the DAX continued as it had another Key Reversal Day to the downside having opened higher than Wednesday and then closed on its lows as it followed the NASDAQ lower. It just missed my 9600 sell level yesterday morning but thankfully we were not long and I am still flat. Today I will be a small seller on any rally back to 9435/9460 with a 9490 stop. My only interest in buying the DAX over the next few days is on a dip to 9135/9185 with a 9095 stop.
June FTSE
The June FTSE plan worked well yesterday as by the time I posted yesterday morning it was trading at the bottom of my buy range at 6580 and after a nice rally I was able to cover this position at 6615 and I am now flat. The FTSE also had a Key Day Reversal yesterday which is the first such reversal that I have seen in a very long time. It has key support at 6525 which is so far managing to hold and today I will be a small buyer on any dip to 6500/6520 with a 6480 low which is just below this week’s low. Despite the Key Day Reversal yesterday I do not want to be short the market at this time.
Dow Rolling Contract
To complete this sequence the Dow also had a serious Key Day Reversal yesterday. Having traded as high as 16450 after the Jobless Claims were released the market then fell nearly 300 points and in the process closed below key support at 16220/16250. Just like the S&P I was lucky with the Dow yesterday as after I posted it was trading at my 16380 buy level and after a nice rally after the US markets opened I was able to cover this position at 16430 and I am now flat. I am very tempted to put on a short macro position in the Dow as the market is clearly having trouble breaking and closing over the Dec 31 high at 16589. Today I will be a small seller from 16250/16300 with a wider 16350 stop. A break and close below 16050 will be very bearish.
June BUND
No change as I am still a buyer on any dip to 143.25/143.55 with a 143.10 stop.
Gold Rolling Contract
No change as I do not want to chase the market higher and I will still be a small buyer from 1305/1312 with a 1298 stop.
Silver Rolling Contract
Silver worked well yesterday as the market spiked higher after I posted which enabled me to cover my long 19.75 position at 20.35 and I am now flat. It is back trading below 20.00 as I write this morning and today I will again be a buyer from 19.60/19.90 with a 19.35 stop.
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