Yesterday, stocks retreated from the record highs achieved last week as speculation mounts that the Fed will raise interest rates sooner than expected. The mood of the markets was not helped by a Goldman Sachs Report which said that rates will rise in the third quarter of 2015 rather than the first quarter of 2016. The Equity Valuations guide is now trading at 16.7 times earnings which is higher than the five year average of 14.3. The VIX rose 10% yesterday to 11.33 which is the highest level since June 24.
European Indices were not helped by Greece which fought off calls to consider a third bail-out, whilst ECB President, Dragi warned that the pace of economic fixes is slowing. A Greek official told reporters in Brussels that Greece has ruled out further aid as this would come with a raft of conditions which their citizens would find very hard to accept. However an EU official said yesterday that Greece will need further emergency aid as the Government still faces a funding shortfall. The European mood was not helped by the weaker than expected German Industrial Production Index which fell for a third consecutive month.
ECB Board Member, Sabine Lautenschlaeger said that the ECB should only consider drastic measures such as QE if the Euro-Zone is on the verge of deflation as the side effects are especially significant.
This morning on the economic data front we have UK Industrial Production at 9.30 am. This is followed at 12.30 pm by the US Small Business Optimism Index. At 3 pm we have the JOLTS Job Openings which is one indicator that Fed Chair, Janet Yellen pays close attention to. At 6.45 pm Fed Member Kocherlakota will speak on Monetary Policy in Minneapolis. Finally at 8 pm we have US Consumer Credit.
September S&P 500
The S&P plan worked well yesterday as the US markets had a nice sell-off after the open which allowed me to cover my 1978 short position from late Thursday at 1972 and I am now flat. Today being a Tuesday, which has seen the market rise in 15 of the last 18 Tuesday’s, making it difficult to go short, hence the name ‘turnaround Tuesday’. I still believe that the market is too near the round number 2000 resistance for the S&P to not at least test this level before it heads lower. Today I will still be a buyer on any dip to 1961/1965 with a 1957 stop. I will also look to sell the market on any rally back to 1975/1979 with a 1983 stop.
Euro/USD
After I posted yesterday, the Euro traded up to my 1.3610 sell level. I am still short and I will lower my stop on this position to a tight 1.3630. I still do not want to be short the Euro at this time.
US Dollar Index
The Dollar finally traded down to my 80.30 buy level with a 80.23 low. I am still long and I will leave my stop the same at 79.70 which is just below the low made at 79.74 before the ECB Meeting.
September DAX
After I posted yesterday the Dax traded down to my 9960 buy level however it accelerated lower into the close and stopped me out of my long position at 9930 and I am now flat. It is now back trading below key support at 9950 and I would prefer to see the market close below this level again today before looking to set up a short position. Today I will again be a small buyer on any dip to 9870/9900 with a 9850 stop.
September FTSE
I was finally stopped out of my long 6750 position from last week at 6780 and I am now flat. Despite yesterday’s sell-off I still like the FTSE as long as we can stay over 6750 and so today I will be a small buyer from 6750/6770 with a 6738 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow plan worked well yesterday as the market traded up to my 17060 sell level before having a nice sell-off which enabled me to cover this position at 17010 and I am now flat. I still believe that the market is beginning to top out as it is very overbought on a Daily, Weekly and Monthly basis. Today I will again be a seller on any rally to 17050/17080 with a 17110 stop. I still do not want to be long the Dow at this time.
September BUND
After I posted yesterday the Bund traded up to my 146.95 sell level. I am still short and I will leave my stop the same at 147.30 which is just above highs made early last week.
Gold Rolling Contract
Gold has been tricky to trade since it had its ‘$47 rally’ two weeks ago as the market has been stuck in a narrow range since. I do not want to chase it higher at this time as I prefer to be long Silver. Today I will be a small buyer on any dip to 1305/1313 with a 1299 stop.
Silver Rolling Contract
Having been stopped out of my long 20.80 position at 21.00 yesterday I am still flat as Silver did not trade back to my 20.80 buy level. Today I will raise my buy level to 20.70/21.00 with a 20.45 stop.
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