We had some quite explosive price action in the last 24 hours with a lot of the movement coming after the publication of the September FOMC Minutes were released which has seen US Equities close 1.8% higher, US 10 Year Treasury Yields fall 9 bps to 2.30% and the US Dollar fall by 1.0%. All the above happened on a FOMC release that was supposed to be of limited interest given we had the Yellen press conference and a post-meeting statement that was accompanied by the new ‘dot points’ of FOMC members individual projections for the future path of the Fed Funds rate.
Three features of the minutes have grabbed attention:
- The strengthening of the US Dollar, which in the minds of some FOMC participants represents a downside risk to growth. For two members the strengthening Dollar is a risk of impeding progress towards the 2.0% inflation goal.
- Economic weakness in some pats of the World(Euro-Zone,Brazil and latterly Japan)posed some downside risks for US growth.
- Fear that removal of the phrase ‘considerable time’ would be misunderstood as implying a shorter time until Fed rate ‘lift off’ than previously discounted.
Given that the Fed’s ‘dot points’ (that recall showing the Fed Funds rate rising further in 2015 and 2016 than previously forecast) presumably should have incorporated these risks, arguably markets have gone overboard in their interpretation. I do not interpret the minutes as any attempt to talk down the Dollar as surely the Fed can see that a strengthening Euro, Yen and Brazilian Real is only going to aggravate current economic weakness in these areas.
This morning on the economic front we have the ECB publishing its Monthly Report at 9.00 am. This is followed at 12.00 pm by the latest Bank of England Rate announcement and Asset purchase. At 1.30 pm we have the US Weekly Jobless Claims and this is followed at 3 pm by Wholesale Inventories. The Fed’s Bullard is due to speak at the same time on Monetary Policy. This is followed at 4 pm by the main event of the day when the ECB’s President Dragi and the Fed’s Fisher will both speak in Washington with the theme being Europe.
December S&P 500
I must say I wonder if the Fed changed their minutes since the last FOMC Meeting as there was absolutely no prior hint of what happened yesterday. Everytime the stock market looks like it is in trouble the Fed comes out to again bail it out and yesterday certainly was a continuation of this theme. Shortly after the US markets opened the S&P went into free-fall again and in the process tested last Thursday’s 1919 low before having a near 50 handle rally into the close.
The S&P plan initially worked out really well as the market traded down to my 1922 buy level before having a strong rally ahead of the FOMC release which enabled me to cover this position at 1936. Following the release of the Fed Minutes I went short at 1942 only to be very quickly stopped out of this position for a small loss at 1946 and I am now flat. Given the carnage of the recent two weeks I must say I did not expect the S&P to trade and close back above 1960 especially after Tuesday’s drubbing. However as traders we have to respect the price action whether we agree with it or not.The next key resistance is last Monday’s high at 1971 and a break and close above here opens up the possibility of a move higher to the 1992 key resistance level. Today I will be a small seller from 1968/1973 with a 1976 stop. I will also be a small buyer on any dip back to 1949/1954 with a 1944 stop.
Euro/USD
Finally the big move in the Euro that I have been looking for over the past two weeks happened yesterday. This move has been flagged by the extremely low reading in the Daily Sentiment Index over the past 10 days coupled with the Euro trading at the bottom of its Bollinger Band and Williams Index. This morning I have covered my remaining 1.2530 long position from last Monday at 1.2750 and I am now flat. The 1.2750/1.2800 is strong resistance and I am hoping the market will trade back lower first before attempting to trade up to the 1.2920/1.2970 key resistance area from where I will look to go short. Today I will again be a small buyer on any dip to 1.2690/1.2720 with a 1.2660 stop.
US Dollar Index
No change as I am still a small buyer on any dip to 84.60/84.90 with a 84.25 stop.
December DAX
Again the most important technical indicator in my opinion is the Bollinger Band and Williams Index especially when they are set up to the downside. Yesterday if you looked at the Daily chart these indicators were telling you in no uncertain terms not to be short the Dax and that a rally was imminent despite the awful price action that this market has displayed over the past week.
Yesterday after I posted the Dax was trading at my 9010 buy level before having a nice rally which enabled me to cover this position at 9060 and unfortunately I am now flat as the market just fell shy of the March 14 low at 8905 before having a 160 point rally since yesterdays low. In the process the Dax is back trading over the key 9080 resistance level and this area should now act as good support. Today I will be a small buyer from 9070/9100 with a 9040 stop. I still do not want to be short the Dax at this time.
December FTSE
The consistent theme of not been short the FTSE certainly paid dividends in yesterday’s trading session as shortly after I posted the market was trading at my 6430 buy level. After a nice rally overnight I have covered this position at 6500 and I am now flat. Today I will again be a buyer on any dip to 6460/6485 with a 6435 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow plan did not work out as expected yesterday as after the FOMC Minutes were released the market traded up to my 16850 sell level before very quickly stopping me out of this trade at 16905 and I am now flat. The next key resistance for the Dow is from 17050/17100 and I will be a small seller in this area with a 17130 stop. Despite yesterday’s unexpected rally I still do not want to be long the Dow at this time.
December BUND
My fears that the Bund would break and trade higher through the key 150.00 resistance level certainly proved to be the case over the last 24 hours. The Bund is telling you that economically Germany is a mess and this morning I have been able to cover my long 149.90 position at 150.50 and I am now flat. Today I will again be a small buyer on any dip to 149.90/150.20 with a 149.65 stop. Despite the low record bond yield for the German Bund I still do not want to be short the market at this time.
Gold Rolling Contract
Gold continued its recent rally off last Monday’s 1182 low as we are now trading over the previous key resistance at 1220. I still long from 1187 and today I will raise my stop on this position to 1214 as I look for Gold to build on recent gains and challenge the next resistance at 1250 ahead of key resistance at 1280/1300.
Silver Rolling Contract
Silver continues to lag Gold but I still expect it to play catch up. I am still long at 16.95 and I will still leave my stop the same at 16.45 which is just below last Monday’s 16.66 low.
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