The Euro broke and closed below 1.2800 for the first time since 10 July 2013 as a result of another significant downside German IFO Survey and a major upside surprise for US New Home Sales. The IFO printed 104.7 versus 106.3 last month and in doing so has reinforced expectations for more aggressive action from the ECB, something which the Euro-Zone Bond and stock markets liked. US Bonds, in contrast, suffered from both the strength of the US Home Sales data and a poorly received US 5-Year Note Auction.
US August New Home Sales came in at 504k versus 430kexpected and 427k the previous month. Home Sales are now at their highest level since January 2008. The 5-Year Bond Auction in the US was the first since last week’s FOMC Statement and had its lowest bid to cover ratio at 2.56 since July 2013. Stocks were evidently unperturbed by higher Bond Yields as they liked the stronger Home Sales with the major indices closing with gains of between 0.8%and 1.0%. The US Dollar also received support from comments from the Fed’s Evans who said that if the Dollar ended up very strong it would help reduce inflation pressure and he would be in no hurry to alter Monetary Policy.
This morning on the economic front we have Euro-Zone Money Supply at 9.00 am. This is followed at 10.00 am by the UK CBI Reported Sales. At 1.30 pm we have the latest US Weekly Jobless Claims and Durable Goods Orders. Finally at 2.45 pm we have the US Services/Composite PMI.
December S&P 500
The S&P rose strongly yesterday as suggested by the weak McClellan Oscillator reading at -226 yesterday morning. I thought, given the extent of the sell-off from the previous three days that the markets might trade lower first before mounting this rally but unfortunately this did not happen. The market traded higher to my 1987 sell level and I am still short with the same 1992 stop. If I am stopped out of this position I will be a more aggressive seller from 1998/2003 which is where we still have the ‘Open Gap’ from last Monday. I will leave a 2007 stop if taken short in this latter area. I will also raise my buy level to 1972/1977 with a 1967 stop which is just below this week’s low.
Euro/USD
Yesterday again proved how important it is to have stops in the market as I was stopped out of my latest long Euro 1.2855 position for a small loss at 1.2810 and I am now flat. The Euro is currently trading at the 1.2740 key support from 2013. This level was tested three times last year before the Euro spiked higher. The Daily Sentiment Index is now printing just 3% bulls which is the lowest in 4 1/2 years. I always pay a huge amount of respect to these extreme opinions as they constitute the single best indicator of an impending change of direction for a particular market. In my opinion it is hard to get a more extreme negative view towards the Euro than is currently expressed. When the Euro turns the initial spike will be sharp and could rapidly carry prices to at least 1.3000.
This morning the Euro is again testing the bottom of its Bollinger Band but interestingly the Williams Index is trying to turn higher. For this reason I have bought the Euro again at 1.2743 and I will leave a 1.2690 stop on this position. If we break and close over 1.2800 I will add to this trade with a 1.2770 stop.
US Dollar Index
This morning I have just been stopped out of my 84.80 short position at 85.20 and I am now flat. As I am currently long the Euro versus short the US Dollar I am going to stay flat in the Dollar Index unless we break 84.90. If we break this 84.90 level I will go short again with a tight 85.20 stop.
December DAX
After I posted yesterday the Dax just missed my buy level by 15 points before having a 150 point rally and I am still flat. To me the Dax is the most difficult market to trade at this time as the economic news has been horrific out of Germany and the Euro-Zone but yet, because of QE, it is very difficult to short the market. To compound this issue, traders are embracing any weak data as it means the ECB will have to do more QE. Today I will raise my buy level to 9585/9615 with a 9565 stop. My only interest in selling the Dax is on a rally back to 9770/9800 with a 9825 stop which is just above last Friday’s high.
December FTSE
The FTSE also just missed my buy level before trading higher. I tried to be too clever with my buy level yesterday as I should have just bought the market as we were trading at the bottom of the Bollinger band and Williams Index. It then traded up to my 6705 sell level last night. As I am already short the S&P I have decided to cover this position at 6695 this morning and I am now flat. My only interest in selling the FTSE is on a further rally to 6735/6755 with a 6775 stop.
Dow Rolling Contract
Thankfully I lowered my stop to 17180 on my short 17330 position from last Friday as I was taken out of this position near the close last night and I am now flat. The Dow has left an ‘open Gap’ from last Friday at 17275 and today I will look to go short on any further rally to 17270/17300 with a 17340 stop. I still do not want to be long the Dow at this time especially with October starting next week as this traditionally is the weakest month for equity trading.
December BUND
No change as my only interest in selling the Bund is on a rally to 149.30/149.60 with a 149.90 stop. I still do not want to be long the Bund at this time despite the weak economic data that is currently been reported.
Gold Rolling Contract
After I posted yesterday morning Gold traded down to my 12.16 buy level. I have just been stopped out of this trade this morning at 1207 and I am now flat. As I have mentioned over the last few months the key support for Gold is from 1180/1195 which was tested twice in 2013. Optimism among Gold traders has dropped below 9% for four straight days which suggests strongly that a counter trend rally is fast approaching. Today I will be a more aggressive buyer on any further dip to 1185/1195 with a 1175 stop.
Silver Rolling Contract
No change as Silver continues to trade just in front of my key $17.00 support level. I am still long at 17.65 and I will leave my stop the same at 16.95 as optimism towards Silver is now trading at just 3% bulls so hopefully we will get a bounce to relieve the downside compression.
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