Equity markets lost ground yesterday with the S&P and Dow closing down 0.9% and 08% respectively whilst European Bourses averaged a 0.3% fall. Earnings reports weighed on markets, most notably Twitter which fell an incredible 17% whilst Financial stocks were again lower. Events in Ukraine also continue to affect sentiment with the region still on the brink of civil war.
In its latest Global Economic Outlook, the OECD revised downwards its global growth forecast to 3.4% for 2014 from its November forecast of 3.6%. They left the 2015 forecast unchanged at 3.9%. For 2014, growth forecasts were cut for China (now 7.4% from 8.2%) and the US (2.6% from 2.9%) whilst the Euro-Zone was revised higher to 1.2% from 1%.
Positive economic data also helped the Euro and Sterling grind higher. The Euro-Zone Services PMI was confirmed at 53.1 in April but there was some surprising strength in the Spanish Index which rose to 56.5 from 54.0 which is the highest reading since 2007. The UK Services PMI was also strong, rising to 58.7 from 57.6 which is the 16th consecutive month of expansion. The Eur/USD and USD/GBP ended the day 0.4% and 0.7% higher respectively.
This morning on the economic front we have UK BRC Shop Price Index followed by German Factory Orders. At 1.30 pm we have the US Non Farm Productivity Index.
June S&P 500
For only the third Tuesday out of the last 18 has the S&P closed lower as the market was weighed down by the very weak earnings from Twitter and is now down over 60% from its highs made earlier this year. Last Friday I mentioned that if stock markets could not rise on good economic news we have to be wary of a significant move lower and this is especially true with regard to the UK where the FTSE is really struggling to make headway despite their very strong economy. The markets again started to sell-off as soon as I posted yesterday morning. The S&P traded down to my 1871 buy level and having been stopped out of my long Dow position I covered my long S&P position at 1875 and I am now flat.
Today the key support for the S&P comes in at 1850 so I will be a small buyer on any dip to 1849/1853 with a 1846 stop. I will also lower my sell level to 1869/1874 with a 1877 stop. A break and close below 1850 and especially 1830 will be very bearish going forward and will see me start to set up a more aggressive short position.
Euro/USD
As expected the Euro continues to rally despite all the talk from Dragi and the ECB. Tomorrow’s ECB Meeting, and press conference that follows with Dragi, will be very interesting especially if they leave rates unchanged. As I have mentioned over the last few months I still expect the Euro to break 1.4000 and this should happen if they leave rates unchanged. Today I will raise my buy level to 1.3880/1.3910 with a 1.3855 stop on any long position.
US Dollar Index
Finally the US Dollar Index is beginning to move. After I posted yesterday the Index traded down to my 79.20 buy level. I am still long and I will leave my stop the same at 78.80. However a break and close below 78.80 will be very bearish and could open up the possibility of a move lower to 75.50.
June DAX
The DAX led the other stock markets lower yesterday but interestingly it is now trying to hold in this morning. The key support for level for the Dax comes in at 9310/9350 and I would expect the market to have a nice rally if we test this area. After I posted yesterday morning it traded down to my 9470 buy level before having a nice rally which enabled me to cover this position at 9510 and I am now flat. Today I will be a very small buyer from 9380/9410 with a tight 9360 stop. If I am taken long and subsequently stopped out I will be a very aggressive buyer on any dip to 9310/9345 with a 9285 stop. Given that we are approaching this important support zone I do not want to be short the Dax at this time.
June FTSE
My short 6795 FTSE position from last Friday finally worked out well yesterday as the market fell despite the very good PMI Services Report. This enabled me to cover this position at 6755 and I am now flat. As I mentioned above the weakness in the FTSE is a real concern as the economic news has been so positive. Today I will again be a seller on any rally to 6775/6800 with a 6820 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow had a bad day yesterday led by weakness in AIG after the company reported weaker earnings. After I posted yesterday morning the market started to sell-off and traded down to my 16460 buy level before stopping me out of this position shortly after the US markets opened at 16390 and I am now flat. The key support levels for the Dow are at 16250 and then 16050 with a closing break of the latter been especially bearish. Today I will be a small buyer again on any dip to 16290/16330 with a 16230 stop. I have to use wider stops given the volatility. I still do not want to be short the Dow at this time.
June BUND
The Bund plan worked out well yesterday as after I posted it traded down to my 144.50. After a rally this morning I have covered this position at 144.85 and I am now flat. I still like the Bund and today I will again be a buyer on any dip to 144.30/144.50 with a 144.15 stop.
Gold Rolling Contract
Gold just missed my 1302 buy level before trading higher and I am still flat. Today I will leave my buy level the same at 1292/1302 with the same 1285 stop.
Silver Rolling Contract
No change as I am still long at 19.50 with the same 19.10 stop. If i am stopped out I will be a more aggressive buyer in front of 18.50 with a 17.90 stop.
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