It was all going so very well yesterday until red headlines hit the screens reporting that a patient was being tested at Bellevue Hospital in New York for the Ebola Virus. The news had the effect of bringing USD/JPY, the current high beta bellweather for global risk sentiment, down 30 points to 108.05 whilst the VIX jumped from 15.68 to 17 alongside a 0.6% fall in the S&P. Prices stalled around these levels but still showed strong gains on the day with US stock markets closing up between 1.25/150%. It was just Wednesday of last week when the VIX was trading at 30.0.
The probable cause of the rally earlier yesterday was the surprisingly strong German PMI data where the Manufacturing Index jumped to 51.8 from 49.9 last month. This had the effect of pulling the overall Euro-Zone reading up to 50.7 from 50.3 against expectations of a drop below the 50 expansion/contraction line. This was despite some more disappointing French PMI news with Manufacturing printing 47.3 versus 48.8 last Month.
Also supportive of the better equity market performance, which put the S&P more than 7% higher than last week’s lows, were the outstanding results from Caterpillar. So far 70% of S&P500 companies have now beaten their street estimate. European earnings news was less positive with Unilever and Michelin both disappointing analysts expectations.
This morning on the economic front we have German Consumer Confidence at 9.00 am. This is followed by UK CBI Reported Sales at 9.30am. The only data of note due from the US is New Home Sales at 3 pm. This weekend our clocks will go back by 1 hour however the US do not change until next weekend which means that all US data releases will be 1 hour earlier and the stock market will close at 8 pm for the week.
December S&P 500
When I posted yesterday morning the markets were very calm with the S&P straddling my 1925 support zone. I never imagined that it would subsequently trade 30 handles higher before selling off in the last hour on the Ebola news story. I must say it is a very long time since I have seen such volatility in both directions. Last Thursday the world looked at an end and a week later everything appears to be rosy again. I do not trust this market one bit despite 70% of the S&P companies reporting better earnings. As a result I am trading in smaller size with larger stops and unfortunately having gone short yesterday morning at 1933 I was very quickly stopped out of this position at 1944 and I am now flat.
It is now clear that the 1920/1925 is major support and it will take a break and close below here for the market to turn ugly again. Today if the S&P breaks 1919 I will go short with a 1926 stop. I will also be a small seller on any rally back to 1954/1960 with a 1963 stop. My only interest in buying the market is on a dip to 1930/1935 with a tight 1925 stop.
Euro/USD
Yesterday after I posted the Euro spiked higher to my 1.2670 sell level. I am still short and today I will lower my stop on this position to 1.2705. I still do not want to be long the Euro at this time as it failed to rally on the better PMI data yesterday.
US Dollar Index
No change as I am still a small buyer on any dip to 85.20/85.50 with the same 84.85 stop.
December DAX
Just after I posted yesterday the Dax started to spike higher and was soon trading at my 8950 sell level. Thankfully I had a tight stop on this position as I was quickly stopped at 8990 which was just above Wednesday’s high. I am still flat and today I will again be a small seller on any further rally to 9095/9130 with a 9155 stop. Given the huge move since last week’s low and despite the fact the Dax closed over 8920, I still do not want to be long the market at this time.
December FTSE
The FTSE struggled higher yesterday morning with the market eventually trading up to my 6395 sell level. Today I will raise my stop slightly to 6440 in order to give this trade some room. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
When I wrote my update yesterday I thought I had nailed the high in going short the Dow at 16600. Thankfully I at least covered half of this position before the close on Wednesday at 16480 before getting stopped out of the rest of the trade for a breakeven shortly after the US Markets opened. As I have mentioned over the last two days I do not trust the stock market at this time despite the massive 900 point rally following last week’s capitulation lower. The Dow companies are reporting mixed earnings at this time, in contrast to the S&P, which is another reason for being suspicious. Today I will again try the short side on any rally to 16750/16800 with a 16840 stop.
December BUND
When the equity markets started to spike higher yesterday the Bund finally traded down to my 150.30 buy level. I am still long and I will leave my stop the same at 149.95. A break and close below 149.80 will be very bearish in the short term.
Gold Rolling Contract
My fears that Gold would trade lower were certainly proved to be correct yesterday and thankfully I am not long. It has been particularly difficult to trade all this month as we have had little or no movement. Today I will be a small buyer on any further dip to 1212/1220 with a 1205 stop.
Silver Rolling Contract
Silver also failed to rally higher yesterday but did in fact hold up better than Gold. However as I mentioned yesterday if Silver did not have any follow through to the upside I would stand aside. As a result I covered my long 17.10 position at 17.20 and I am now flat. Today I will again be a buyer on any dip to 16.50/1680 with a 16.25 stop.
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