The last 24 hours has seen a healthy bounce in equity markets as Oil prices appeared to stabilise. The improvement in risk sentiment saw the US Dollar lose ground against Emerging-Market currencies although it continued to make gains against the Europeans. It does feel like markets are beginning to return to normal service ahead of the first major data releases of the year, namely the US Employment Reports. With more investors returning to their desks after the recent holidays, investors will be looking at certain asset prices in askance, most notably Oil prices. The continued rout does seem to be increasingly driven by sentiment, with no one brave enough to call a floor just yet.
It is remarkable, however, how even the slightest hint of a stabilisation in Oil prices can help steady the nerves of risk investors. Yesterday as Oil held steady, the NOK posted a 1.3% gain against the US Dollar while the Ruble was as much as 5.5% stronger. In addition, equity investors took some heart from a reminder that the ECB is closely investigating further policy measures. In a letter to a European MP, ECB President Dragi noted that such measures could well include Sovereign Bond purchases. This helped the Euro Stoxx 50 to close 3.6% higher.
Poor economic data out of Europe continues to fuel speculation that Dragi will introduce some form of policy easing at the 22 January ECB Meeting. As I mentioned yesterday, German Factory Orders came in a lot weaker than expected at -2.4% which saw the Euro make a new 9-year low at 1.1752.
This morning on the economic front we have UK Trade Balance and Industrial Production at 9.30 am. All eyes will then turn to the US at 1.30 pm when the US Non Farm Payrolls are released – the consensus is for a 240K increase in Payrolls following last month’s very strong 321K. The Unemployment Rate is expected to fall slightly to 5.7%.
March S&P 500
The S&P ended the day with a near 2% gain after comments from Fed Member Evans who said that Rates may remain lower for longer, especially given the worsening inflation data across the Globe. I must say that it is a very long time since I have seen markets trade with such emotion and volatility, and normally when we get the kind of price action that we have seen over the past three months, we are near the end of a cycle. The S&P gapped higher at the open yesterday leaving a massive ‘Open Gap’ from 2020 which was the close on Wednesday to yesterday afternoon’s 2044 low print. As we have seen in the past, when we see the markets leave these huge gaps, they are nearly always closed over the coming days.
After I posted yesterday the S&P was pushing higher to my 2046 sell level, and given the fact that we saw no pull-back in the market I was stopped out of this position for a small loss at 2052 and I am now flat. I am going to stay flat until we get the Non Farm Payrolls data at 1.30 pm. If the data is stronger than expected I will again look to short the market on a rally to 2068/2074 with a 2078 stop. If on the other hand we get weaker Payrolls, I will be a buyer on any dip to 2039/2045 with a 2034 stop.
Euro/USD
The Euro plan worked well yesterday as shortly after I printed the Euro was trading near the lows of the day at 1.1752. I went long at 1.1770 and after a nice rally in the afternoon, I was able to cover this position at 1.1820 and I am now flat. As sentiment still remains at extreme levels against the Euro, I have no desire to go short at this time, preferring instead to buy dips with a tight stop. Today I will again be a buyer form 1.1760/1.1790 with a 1.1730 stop.
US Dollar Index
The Dollar rallied to my 92.70 sell level after I posted yesterday morning. I am still short and I will leave my stop the same at 93.20. Note that the Daily Sentiment Index reading for the Dollar is at an all time high of 98% which in my opinion is unsustainable without the Dollar selling off first to correct these extreme readings.
March DAX
The Dax volatility is just incredible at this time, as once a key level is broken in either direction the momentum traders take over. Yesterday was no exception as once the 9600 resistance level was broken the Dax rallied 250 points, despite the weaker than expected Factory Orders data. I expect the Dax to run out of steam between 9870/9920 and I will be a small seller in this area with a 9950 stop. I will also look to buy the Dax on any dip to 9690/9730 with a 9660 stop.
March FTSE
By the time that I posted yesterday morning the FTSE was trading at the top of my sell level at 6480. After I went short here I was quickly stopped out of this position for a small loss at 6505 and I am now flat. This 6480 level is a key pivot point for the FTSE going forward. If it continues to build value above here I will look to set up a long position, while value below will see me go back to the short side again. Given the uncertainty I am going to stay flat and see which way the market breaks.
Dow Rolling Contract
The Dow plan did not work out yesterday especially with the Dow closing over 300 points higher. After I posted I went short at 17780 and unfortunately I was very quickly stopped out of this trade at 17850 and I am now flat. The volatility in the Dow lately is just incredible and generally when we see this type of price action we are near the end of a cycle. The Dow has risen from 6400 to 18000 in just six years without any meaningful pull-back in this time. Today I will again look to go short on any further rally to 17970/18020 with a 18060 stop. Given how over-valued the Dow is, I do not want to be long the market at this time.
March BUND
In contrast to the Dow, my short Bund position from Wednesday worked out very well. The Bund had a nice sell-off all day yesterday which enabled me to cover my 157.00 short position at 156.30 and I am now flat. Today I will again be a small seller from 156.70/157.00 with a 157.30 stop which is just above last Tuesday’s 15726 all time high.
Gold Rolling Contract
No change as I am still long at 1207 with the same 1193 stop.
Silver Rolling Contract
No change as I am still long at 16.30 with the same 15.75 stop. A break and close over 16.70 will be very bullish and opens up a possible move to at least 17.80/18.20.
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