Equity markets were solid on Friday night, with the Dow up 1.6%, the S&P 500 up 1.3% and European markets averaging a hefty 2.8% rise. The better mood was driven by some solid economic data and also stronger earnings reports. On the data front, US housing starts rose 63% in September beating expectations for a 5.4% rise whilst the University of Michigan’s consumer confidence series rose to 86.4 in October from 84.6 when a fall to 84.0 was anticipated.
Markets also focused on comments from ECB board member Benoit Coeure, who indicated that the ECB would begin asset purchases within the next few days. Meanwhile Bundesbank President Weidmann criticised the decision to purchase asset backed securities. He said that the eurozone’s economic stagnation was due to structural factors rather than monetary policy. The EUR/USD declined, to end the week at 1.2760, and is just below that level this morning.
The JPY was Friday’s worst performer as the improvement in general risk sentiment undermined the ‘safe haven’ bid for the currency. The USD/JPY traded up from 106.2, to end the week at 106.9, and has opened this morning above 107
Today is a very quiet day for economic data. This morning at 10.00 am we have German PPI and the Euro-Zone Current Account. We have no data of note due from the US as the market waits for US Existing Home Sales tomorrow and CPI on Wednesday.
December S&P 500
The S&P plan worked well on Friday as we got the expected rally that the improving McClellan Oscillator had indicated, coupled with the fact that the market nearly always rallies into a Fed Chair speech. After Yellen spoke the S&P rallied up to a high of 1892 which enabled me to go short at 1886 before having a nice sell-off which enabled me to cover this position at 1875 and I am now flat. The S&P has now rallied nearly 80 handles since the low of Wednesday. The next key resistance is from 1892/1900 which is the spike lower than occurred on August 7 and I would expect the market to have some difficulty breaking this level initially. Today I will again be a seller from 1891/1897 with a 1908 stop Given the volatility I am still trading in smaller size with a wider stop. My only interest in buying the market is on a dip to 1869/1876 with a 1863 stop.
Euro/USD
Despite the huge volatility in the Equity markets on Friday the Euro was reasonably stable to lower for most of the trading session. Late in the day it traded lower to my 1.2745 buy level. I am still long but only in small size and I will leave my stop the same at 1.2695. If I am stopped out of this position I will be a more aggressive buyer in front of 1.2630 with a 1.2580 stop. My only interest in selling the Euro is on a rally back to 1.2900/1.2930 with a 1.2960 stop.
US Dollar Index
The US Dollar just missed my 84.70 buy level on Friday with a 84.85 low and I am still flat. Today I will raise my buy level slightly to 84.70/85.00 with a 84.45 stop. I still do not want to be short the Dollar at this time.
December DAX
For the second consecutive day the Dax just missed my buy level before mounting a massive rally with the market ending the day nearly 500 points higher than Thursday morning’s 8350 low. At least I was not short and no matter what way you look at the Dax you have to be impressed at how swift the rally was. Again the Bollinger Band and Williams Index told me not to be short on Wednesday and Thursday and although it took some time to work they proved again what important technical indicators they are. If the Dax can close over 8820 this evening I will then look to buy the market for 9000/9060 and possibly 9240. Today I will use any pullback to 8690/8730 to go long with a 8640 stop. I still do not want to be short the Dax at this time.
December FTSE
By the time I posted the FTSE had started to rally strongly and this theme continued for the rest of the trading session. I am still flat and today I will raise my buy level to 6170/6210 with a 6145 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow had its wildest trading week in over three years producing the greatest difference between its highest and lowest point in over 3 years. The market just missed my buy level before rallying strongly with the rising McClellan Oscillator over the past three trading sessions telling me that this market was going to rally. The big question today is whether this rally will continue or whether traders will use it to lighten up their positions. The next strong resistance is from 16460/16600 which is just above last year’s closing high at 16589. Today I will be a small seller in this region with a 16630 stop. Given the extent of the rally since last Wednesday’s 15850 low I do not want to be long the market at this time.
December BUND
The Bund has had a nice sell-off since making its high last Wednesday at 152.48. As I wrote at the time that I believe the Bund will have great difficulty breaking this level going forward and so far this has proved to be the case with the market now 200 points lower. Today I will be a small buyer on any further sell-off to 149.90/150.20 with a 149.65 stop. The 149.90 is huge support and a break and close below here will be very significant.
Gold Rolling Contract
Gold continues to trade in a very narrow range despite the fireworks going on in the other major markets. I am still a small buyer on any dip to 1225/1232 with the same 1219 stop.
Silver Rolling Contract
No change as I am still long at 17.10 with the same 16.60 stop.
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