The US Dollar lost some ground yesterday where by all rights it should have gained. The price action in EUR/USD was remarkable in the way that it dipped towards 1.2500 but was rebuffed despite data from both sides of the Atlantic that should have invited a clear break below. In Europe, investors were looking for a slight improvement in the Flash November PMI Readings. That was not to be as instead German Manufacturing PMI dropped from 51.4 to 50.0.
In the US, stronger than expected inflation data should have supported a Dollar rally. Core CPI rose from 1.7% to 1.8% on the back of rising rents and medical prices. This was against expectations for an unchanged read and should help offset the gloomier outlook suggested by measures of inflation expectations. But the most eye-raising result of the afternoon came about from the Philly Fed Manufacturing Index which leapt from +20.7 to +40.8 which is its highest level since 1993.
Elsewhere, UK data continued to surprise on the upside with Retail Sales printing a punchy +0.8% versus +0.3% expected. This helped push Commodity prices higher with Brent Crude closing 1.5% higher.
This morning on the economic front we have no data of note due from the UK or the Euro-Zone. At the later time of 4 pm the only data of note to be released in the US is the Kansas City Fed Manufacturing Index.
December S&P 500
The S&P plan worked very well yesterday as shortly after I posted the market followed the Dax lower which enabled me to go long at 2038 with a 2035.25 low. The market had a very nice rally on the Philly Fed data release which enabled me to cover this position at 2047. Overnight the S&P continued its upward momentum with the market finally hitting my 2056 sell level. I am still short and I will leave a 2063 stop on this position. If I am stopped out of this trade I will use my 5 handle rule to reset my short position with a stop above whatever new high is printed. I will also move my buy level higher to 2040/2046 with a 2036 stop. As I mentioned over the last few weeks I will keep this strategy of selling rallies with a tight stop until we get the sell extreme that I am looking for. Interestingly to give an idea as to how overbought and overvalued the stock market is the S&P has now closed over its 5 Day Moving Average for 21 consecutive trading sessions and this has only happened twice in the last 20 years. The current PE for the S&P stands at a racy 19, which compares to a historical average of 15.
Euro/USD
The Euro plan also worked very well yesterday as shortly after I posted it traded lower to my 1.2510 buy level be fore having a nice rally which enabled me to cover this position at 1.2550 and I am now flat. As I mentioned in detail in the economic commentary the Euro should be trading much lower given the economic diversities between the US and the Euro-Zone but the price action continues to point to the Euro pushing higher. Today I will move my buy level higher to 12490/1.2520 with a tight 1.2470 stop.
US Dollar Index
Finally the Dollar is starting to weaken helped by the fact that USD/JPY has stalled at the 118.70/119.00 resistance level. I am still short from last week at 87.90 and today I will lower my stop slightly to 88.00.
December DAX
The Dax continues to defy logic by rallying despite the awful economic data been released. It rallied to my 9480 sell level yesterday afternoon following the rally in the US markets. I am still short and I will leave my stop the same at 9530 which is just above this morning’s opening high at 9523. If I am stopped out of this trade I will be a more aggressive seller in front of 9560 with a 9610 stop. I have to use wider stops given the volatility.
December FTSE
The FTSE plan worked out well yesterday as it had a nice drop after I posted which enabled me to be able to cover my 6710 short position at 6660 and I am now flat. Today I will again be a seller on any further rally to 6710/6735 with a tight 6750 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow also had a nice drop after I posted yesterday morning which enabled me to cover the rest of my short 17720 position at 17620 and I am now flat. I will continue with the strategy of selling rallies with a tight stop until we get the sell extreme that I am looking for. Today I will again be a small seller on any further rally to 17790/17830 with a 17860 stop. Given how overbought this market is I still do not want to be long at this time.
December BUND
After I posted yesterday the Bund traded higher to my 151.75 sell level. I am still short and today I will lower my stop to 151.95. If I am stopped out of this trade I will be a more aggressive seller from 152.20/152.50 with a 152.65 stop.
Gold Rolling Contract
Gold is again testing the key 1200/1204 resistance level. I am still flat and I am going to stay flat unless Gold prints 1210,where I will buy the market with a tight 1195 stop.
Silver Rolling Contract
Silver is holding in better than Gold at this time. I want to be long Silver as I feel naked when I do not have a long position. For this reason I have bought Silver again this morning at 16.25. I will leave a 15.80 stop on this position. A break and close over 16.60/16.80 will be very positive in the short term.
January Nymex Crude
The market has now rolled to the January Contract which is trading at a small 12 point premium to the December Contract. I am still flat and today I will be a small buyer on any dip to 74.90/75.30 with a 73.95 stop. Crude is still oversold and is due a decent rally.
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