Last Friday proved to be a low-beta repeat of Thursday with equities lower across the Globe and the US Dollar ending the day higher against every other G10 currency. Sentiment rather than news drove the moves but global growth concerns were taking most of the blame in journalistic circles. Markets were not helped from comments from UK Finance minister George Osborne at the IMF/World Bank Meetings when he spoke of ‘serious clouds gathering on the economic horizon’.
Treasury Yields which did not fall much during Thursday’s equity carnage did so on Friday in a bull flattening move that saw 10 year yields falling another 4bps to 2.27% US Equity Indices lost between 0.7% for the Dow and 2.3% for the NASDAQ.The Dow is now down for the year as the markets got hit hard in the last hour of trading and are opening lower this morning. The US Indices had their worse week since 2012 while the VIX rose to a new high for the year at 21.25.
There was plenty of Central Bank speak over the weekend, with the two standouts being from Fed Vice Chairman Stanley Fisher and ECB President Mario Dragi. Fisher on Saturday said that ‘if foreign growth is weaker than anticipated the consequences for the US economy could lead to the Fed to remove accommodation more slowly than otherwise’. This plays with the grain of market reaction to last Wednesday’s FOMC Minutes. Dragi meanwhile said that he fears the Euro-Zone slowdown may postpone investment decisions by firms and households. He reiterated what he said Thursday namely that the Governing Council is unanimous in the commitment to using additional unconventional instruments within its mandate to address risks of a too long period of low inflation.
We have no economic data of note due from either side of the Atlantic today. The US Bond markets are closed for Columbus Day while the stock market will be open as normalThe Fed’s Evans is due to speak on the economic outlook in Indianapolis at 5.30pm while at 6.30pm the ECB’s Constancio will speak in Washington.
December S&P 500
The S&P just had its worst week since May 2012 as my fears that the market was not oversold given the -130 McClellan Oscillator reading last Thursday certainly proved to be the case with the market getting hit hard in the last hour of trading and then again after the Cash markets closed. The S&P cash closed at 1906 on Friday and after the Futures market opened last night selling continued with the Futures trading down to 1883 which is below the 1992 low from August 7 It is incredible since the September 19 high and the day the Hindenburg Omen was confirmed the Dow is down over 800 points while the S&P has now lost nearly 135 handles.
The S&P plan worked well on Friday as shortly after the US markets opened lower they had a nice rebound which enabled me to go short at 1929. Unfortunately I covered this position to early at 1918 before the market got hit hard. The McClellan Oscillator closed at -196 on Friday and as this only measures the internal reading of the Cash markets and not the Futures market it does not reflect what went on in the last 15 minutes of trading and last night’s down Gap. The S&P opened below my buy area last night and given how oversold the market is currently trading I have bought the S&P at 1887 with a 1878 stop. If I am stopped out of this position I will use my 5 handle rule to reset my long position. For new members please see an explanation for this signal under the ‘education tab’ on my tradernoble website. The S&P has strong support at 1870 and I would expect a decent rebound from this area before the market trades lower. I will also be a small seller on any rally back to 1920/1927 with a 1933 stop.
Euro/USD
Unfortunately I was stopped out of my long 1.2690 position right at the lows of the day at 1.2620 before the market rallied strongly and I am now flat. Today I will again be a buyer from 1.2610/1.2640 with a 1.2580 stop as I am impressed how well the Euro is holding up considering how weak the stock markets are currently trading.
US Dollar Index
No change as I am not going to chase the US Dollar higher and I will leave my buy level the same at 85.00/85.30 with a 84.70 stop.
December DAX
The Dax had another bad trading session on Friday with the market down over 1300 points from its 10000 summer high. This morning the Dax is extremely oversold and trading at the bottom of its Bollinger Band and Williams Index. The Dax has very good support between 8670/8710 and today I will be a small buyer in this area with a 8640 stop. Given how oversold the Dax is currently trading my only interest in shorting the market is on a rally back to 8850/8900 with a 8930 stop.
December FTSE
The Ftse just missed my 6480 sell level after I posted on Friday by a few points before the market got crushed with the market trading as low as 6250 overnight and I am still flat. Thankfully we were not long on Friday and today given how oversold the Ftse is currently trading and the fact that it is at the bottom of its Bollinger Band and Williams Index I will be a small buyer from 6230/6260 with a 6210 stop. I expect a decent rally to develop out of this support area before the Ftse trades lower.
Dow Rolling Contract
The Dow plan worked very well on Friday as shortly after I posted the Dow was trading at my 16720 sell level. Unfortunately after the market started to sell-off I covered my position to early at 16620 and I am now flat. I cannot believe that the Dow fell another 200 points and this morning the Dow is extremely oversold and is either due a bounce or the market is going to crash from here which I do not believe is going to happen at this time. Today I will be a small buyer from 16450/16480 with a 16380 stop. I have to use a wider stop given the volatility.
December BUND
The Bund plan also worked well as after the equity market started to sell-off the Bund rallied which enabled me to cover my long 150.15 position from last Thursday 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 149.70 stop. I will also be a small seller on any further rally to 150.90/151.20 with a 151.45 stop.
Gold Rolling Contract
The next key resistance for Gold is at 1240 and for this reason I have decided to cover my long 1187 position from last week at 1235 this morning and I am now flat. If Gold breaks and closes over 1245 I will then look to reset my long position, otherwise I am going to stay flat as I want to see how the market reacts to this key resistance area.
Silver Rolling Contract
No change as I am still long at 16.95 with the same 16.45 stop. So far Silver has not followed Gold higher but I am still hoping that Silver will play ‘catch up’.
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