If there’s a common factor tying together yesterday’s market price action it is the further fall in oil prices with the benchmark WTI crude off another $2 to $76.70 and the Brent blend -$2.27 to $82.54. Whilst ostensibly positive for growth prospects of net energy importers (The Fed’s James Bullard repeated that line last night) it has weighed on US equities via significant falls in energy stocks. Latest oil price falls are attributed in part to news of further price cuts – for December deliveries – to American customers by Saudi Arabia.
Weaker oil has also taken a bite out of the Canadian dollar and Norwegian Krone, the two most oil-price sensitivecurrencies and with the latest Saudi action viewed by some as presenting fresh challenges to the profitability of Canadianoil and gas production.
Elsewhere the US dollar is softer, the narrow DXY index pulling back from Monday’s new cycle high of 87.40 to sit -0.3% at 87.0 currently. The modest bounce in EUR/USD is attributed in part to a Reuters report detailing ongoing frictions between ECB President Draghi and other Governing Council members (one source of angst related to Draghi’s reference to the desirable scale of balance sheet expansionin September, after the Council has apparently agreed there would be no mention of size). Tonight’s informal dinner ahead of tomorrow’s Council meeting might not be a particularly convivial affair. EUR/USD gains have come despite some significant growth forecast downgrades by the European Commission, to 0.8% and 1.1% in 2014 and 2015 respectively, down from the 1.2% and 1.7% projected in May.
The main economic news of note yesterday turned out to be the September US trade figures where the unexpected jump in the deficit to $43bn from $40bn in August, and $40bn expected, has analysts knocking about 0.4% off their estimates for Q3 GDP ahead of the next revisions. This after Monday’s soft construction spending data had already knocked 0.1% or so off growth estimates. There is somesuggestion that the poor trade numbers are a reflection of US Dollar strength and the weaker global growth backdrop though we can see from the likes of Monday’s ISM report that domestic demand is clearly strengthening at present.
This morning on the economic front we have German, Euro-Zone and UK PMI all released before 9:30 am. This is followed at 10.00 am by Euro-Zone Retail Sales. The US will release its latest ADP Employment Report at 1.15 pm which is expected to show a rise of 210K versus last months 213K rise. At 2.45 pm we have the US Services PMI. Finally at 3 pm we have the ISM Non Manufacturing Composite.
December S&P 500
The S&P finally had a decent sell-off after the US markets opened yesterday afternoon which the over extended McClellan Oscillator, coupled with the market trading at the top of the Bollinger Band and Williams Index, had predicted. As I write this update, the US Mid-Term Elections results are not yet in with both parties still predicting Senate victories although it looks like a Republican win. After the sell-off yesterday afternoon I covered half my short 2017 position from Monday at 2002 and I will leave a breakeven stop on the other half. Given how over extended this market is currently trading I still do not want to be long the S&P at this time as the market is still due a 3rd leg down as I mentioned on Monday. If I am stopped out of the rest of my 2017 trade I will use my 5 handle rule to re-instate my short position with a stop just above whatever new high is put in.
Euro/USD
My long 1.2470 position from Monday worked well yesterday as after I posted the Euro started to rally which enabled me to cover this position at 1.2550 and I am now flat. As I have mentioned over the last few weeks the 1.2450 is key support for the Euro going forward as a break and close below here will be very bearish. I still do not believe the Bundesbank want to see the Euro weaken too much from here. Today I will again be a buyer on any dip to 1.2490/1.2520 with a wider 1.2440 stop. Given yesterday’s price action I do not want to be short the Euro at this time.
US Dollar Index
The Dollar just missed my 87.60 sell level yesterday with a 87.45 high and I am still flat. Today I will still be a small buyer on any dip to 86.10/86.40 with a 85.65 stop. My only interest in selling the Dollar is on a rally to 87.40/87.70 with a 88.05 stop.
December DAX
The DAX had a bad trading session yesterday closing on its lows for a 1% loss. As I have said over the last few weeks Germany is not a good story at this time and were it not for the QE by the ECB the Dax would be trading alot lower especially with deflation taking a strong grip of the German economy. I am still flat the Dax which just missed my sell level yesterday morning. Today I will lower my sell level to 9270/9310 with a 9345 stop. I still do not want to be long the Dax at this time.
December FTSE
Just like the Dax, the Ftse is also trading heavy although it did have a nice bounce off the 6420 low into the New York close. I am still flat and today I will lower my sell level slightly to 6490/6520 with a 6545 stop. My only interest in buying the FTSE is on a dip to 6350/6380 with a 6325 stop.
Dow Rolling Contract
Shortly after I posted yesterday morning the Dow traded up to my 17390 sell level before having a nice sell-off after the US markets opened which enabled me to cover this position at 17320 and I am now flat. I still do not like the Dow believing that all rallies for the moment should be sold given how over extended the market is to the upside. Today I will again be a small seller from 17410/17460 with a 17510 stop. I still do not want to be long the market at this time.
December BUND
By the time I posted yesterday morning the Bund had started to rally again. I went short at 151.35 and I will leave my stop the same at 151.70. If I am stopped out of this position I will be a more aggressive seller in front of 152.10 with a 152.50 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip to 1158/1164 with a 1149 stop. I am more comfortable in looking to set up a long position given how low the Daily Sentiment Index reading is printing for Gold at a current 4%.
Silver Rolling Contract
No change as I am still long from last Monday morning at 15.90 with the same 15.25 stop. Again if Silver breaks 16.50 I will look to add to my position.
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