What a difference a few hours can make for these very volatile markets. Just before I posted yesterday the equity markets literally went into free-fall on the weaker earnings report from Samsung. However they then reversed course after we got stronger US economic data, which seemingly vindicates last Wednesday’s FOMC decision, and German Inflation news that once again demonstrates the Bundesbank’s ongoing underestimation of disinflation pressure in the German economy together with the ECB’s underestimation of the risk of outright deflation in the Euro-Zone.
The softer than expected German Inflation data which came in at 0.7%, down from 0.8% last month and 0.9% expected, pulled core Euro-Zone Bond Yields lower and which has also fed into a partial reversal of the post FOMC rise in US Yields. At the same time the US released its GDP print for the third quarter which came in at 3.5% versus 3% expected. This helped to propel the Dow higher, along with positive earnings from VISA, seeing it end the day 200 points higher. Yesterday was an incredibly volatile trading session as the markets continue more and more to trade on emotion. The Dollar ended the day little change while the Commodity markets got hit hard on the German deflation fears. US Weekly Jobless Claims were again strong at 287K.
This morning on the economic front we have Euro-Zone Unemployment Rate and CPI at 11:00 am. This is followed at 12.30 pm by US Employment Cost Index and Personal Income/Spending. At 1.45 pm we have the Chicago Purchasing Manager Survey while finally at 1.55 pm we have the University of Michigan Consumer Confidence. Just to note the US will change their clocks back 1 hour this weekend so economic data and US trading hours will return to normal from Sunday night.
December S&P 500
I was very unlucky with my S&P plan yesterday as earlier in the morning the S&P was trading at my 1979 sell level but by the time I posted the market was in free-fall on the Samsung earnings news. The S&P subsequently bottomed near 1961 before incredibly rallying 34 handles to 1995 before the market had a late day sell-off. I read last night that the Weekly Investors Intelligence Advisor’s Survey shows that the percentage of bears dropped back to 16.3%, which is very near the 27-year record extreme of just 13.3% registered in early September. But probably the most striking portion of the report is the jump in the percentage of bullish advisors from 35.3% to 47.0%. The absolute level may not be extreme but the one-week rise of 11.7% is the biggest one-week jump in 34 years. The McClellan Oscillator is now back approaching a very overbought +250 making me extremely nervous to be long this market at this time despite the fact today is month end. Today I will again be a small seller from 1993/1998 with a 2005 stop. Given how overbought the Williams Index Indicator is reading and the very high MO reading I still do not want to be long the market at this time.
Euro/USD
The Euro plan worked well yesterday as by the time I posted it was trading at my 1.2580 buy level before having a nice rally in the afternoon which enabled me to cover this position at 1.2625 and I am now flat. Today I will again be a small buyer on any dip to 1.2550/1.2580 with a 1.2525 stop. Given how oversold the Euro is trading I do not want to be short at these levels as the market has very strong support from 1.2450/1.2550.
US Dollar Index
No change as I am still a small buyer on any dip to 85.50/85.80 with a 85.10 stop.
December DAX
My Dax plan was even more unlucky than my S&P plan yesterday as literally when I was writing my commentary yesterday morning the Dax was trading at my 9150 sell level but by the time I posted the Dax was in free-fall as the market went down to a new low at 8900 before the Dax recovered and rallied back to the 9160 level before the close. Yesterday was one of the wildest two way trading sessions for the Dax in a long time. After I posted I went long the Dax at 8980 only to be stopped out near the lows of the day at 8940. After the market rallied back into the close I went short at 9155 and I will leave a 9205 stop on this position If I am stopped out of this trade I will look to go short again in front of 9260 with a 9305 stop. Historically Deflation is very bad for the stock markets going forward making it very difficult for me to make a bullish case for the Dax at this time.
December FTSE
No change as I am still a small seller from 6460/6490 with the same 6520 stop.
Dow Rolling Contract
The Dow looked to be in a lot of trouble after I posted yesterday morning but the release of VISA’s earnings helped to steady the market which eventually saw the Dow rally by 200 points. As the market rose I went short at 17090 only to stopped out of this position for a small loss at 17140 and I am now flat. Yesterday was another great example of how important it is to have stops in the market. The Dow is back trading near the top of its Bollinger Band only two weeks after it was trading outside the bottom. The Williams Index is also very overbought making it difficult to make a bullish case despite the massive rally that we have had lately. The next key resistance is from 17230/17280 and I will be a small seller in this area with a 17320 stop. Despite today been month-end I do not want to long the Dow at this time.
December BUND
The very weak German CPI release saw the Bund trade higher as the market again refused to break the key 149.80/150.20 support zone I am still flat and today if the Bund rallies further I will be a small seller from 151.30/151.70 with a 152.05 stop. The Bund continues to tell me that economically Germany is a mess especially with 10 Year Bond Yields trading at record lows near 80bps.
Gold Rolling Contract
My concern that Gold could not break the key 1240/1250 resistance level certainly came through with yesterday’s dramatic sell-off. In the process I was stopped out of my long 1213 position for a small loss at 1199 and I am now flat. The last main support for Gold is at 1180 and a break and close below here risks a capitulation. Today I will still be a small buyer in front of 1183 with the same 1169 stop.
Silver Rolling Contract
Silver followed Gold lower this morning after I printed. I went long at 16.90 only to be stopped out of this trade at 16.45 and I am now flat. It incredible that Silver has now lost over 70% since its May 2011 high at $50. Silver is very oversold and today I will again be a small buyer on any dip to 15.80/16.20 with a 15.45 stop.
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