For the most part, last Friday’s markets simply continued to play the big trends reinforced by the ECB’s new QE programme, with Bond Yields lower, Equities higher and the US Dollar higher. Data seemed to have little say with the Australian Dollar falling despite a better Chinese PMI, the Euro falling despite a better Euro-Zone PMI and the US Dollar gaining despite some poor housing data. The Euro-Zone Composite Flash PMI beat expectations at 52.2 versus 51.7 expected. On the other hand the Markit US Manufacturing PMI printed 53.7 versus 54.0 expected, while Existing Home Sales rose by 2.4% m/m versus 3% expected.
In FX, the bottom end of the G10 leaderboard was crowed as the US Dollar surged against all currencies. The US Dollar Index closed at another 11-year high while the Euro lost another 1.4% to close at 1.1204 having touched 1.1115 earlier. The Japanese Yen remained inexplicably resilient, even with Bank of Japan Governor Kuroda agreeing that the Central Bank may need to get more creative in its adjustments to Monetary Policy should falling inflation trigger further action.
Euro-Zone Bond Yields continued to fall sharply with the German 10-Year closing down 9bps for a new record low at 0.36%. US Bond Yields followed suit with their 10-Year falling 7bps to 1.79%.
The big news over the weekend was Syriza winning most seats in the Greek Election. This sent the Euro tumbling to last Friday’s lows at 1.1120 but it has since recovered and is now trading at 1.1240. The Greek Prime Minister elect, Tsipras, is preparing to set up a Coalition which will end austerity by saying that the era of bowing to international demands for budget cuts is over.
This morning on the economic front we have the German IFO at 9.00 am. We have no other data of note except for the Dallas Fed Manufacturing Activity which is due to be released at 3.30 pm.
March S&P 500
The S&P continues to under-perform the other major European Indices as the weak Euro is certainly helping their markets. The PE’s for the S&P are very high making it difficult for the US markets to make much progress, coupled with the fact that we have had 6 Hindenburg Omen signals already in January. The S&P ‘gapped’ lower on the re-open last night but has so far failed to followed the German DAX higher and it looks like this theme is going to continue with the market under-performing the other Indices. This is very much a different trend then that which we have been use to over the last eight years and will take time to adjust. Today I will be a small buyer on any further dip to 2025/2032 with a 2019 stop. If I am taken long and subsequently stopped out I will use my ‘5 handle rule’ to reset my long position. I will also lower my sell level slightly to 2057/2063 with a 2068 stop.
EUR/USD
The Euro plan did not work out so well on Friday as shortly after I posted the Euro traded lower to my 1.1230 buy level with a 1.1115 low, thus completely filling the 12 year ‘Open Gap’ from 2003. I was stopped out of my two long positions at 1.1195 before the market had a huge 190 point rally off this 1.1115 low. The 30-day Daily Sentiment Index reading closed at a record low of just 8% bulls on Friday while interestingly, the 1.1115 low is the 63% retracement of the entire October 2000-July 2008 rally (82.28-1.6040). For these reasons I bought the Euro again on the ‘Open’ last night at 1.1150. I am still long and I will leave a 1.1095 stop on this position as in my opinion it is only a matter of time before we get a substantial rally in the Euro.
US Dollar Index
After I posted on Friday the Dollar Index was trading at 95.40. I went short here and I will leave a 95.80 stop on this position.
March DAX
The Dax plan worked out well on Friday as shortly after I posted it traded higher to my 10690 sell level before having a nice sell-off in the afternoon which enabled me to cover this position at 10625 and I am now flat. Despite the fact that the Greek anti-austerity party Syriza is going to form the next Greek Government the Dax having opened lower, has rebounded strongly this morning thus making it very difficult to be short this market. If you look at the Daily chart for the Dax, you can see that a major break-out has occurred with the break of 10300 thus opening up a move to at least 11000. However short-term the Dax is very overbought and today I will be a small seller on any further rally to 10790/10830 with a 10880 stop. I will also move my buy level higher to 10470/10520 with a 10430 stop.
March FTSE
The FTSE plan worked out well on Friday as shortly after I posted the market was trading at my 6800 sell level before having a nice sell-off which enabled me cover this position at 6760. The FTSE continues to be a ‘buy on dips’ as any sell-off so far this year has been met with aggressive buying. This theory was proved again overnight as the FTSE opened at my 6690 buy level before buying returned to the market. I am still long at 6690 and today I will raise my stop slightly to 6720 on this position.
Dow Rolling Contract
My Dow 17850 short position from last Thursday worked out very well on Friday as shortly after the US markets opened the Dow started to sell off aggressively which enabled me to cover this position at 17750 and I am now flat. Today I will again be a seller on any further rally to 17720/17780 with a 17810 stop. I will also be a small buyer on any dip to 17300/17360 with a 17270 stop.
March BUND
I am still flat the Bund and today I will lower my sell level slightly to 158.95/159.25 with a 159.40 stop.
Gold Rolling Contract
Gold continues to run into strong resistance at the 1300/1310 level. With Gold also trading at the top of its Bollinger Band and Williams Index, it makes it difficult to trade higher. Today I am still a small buyer from 1260/1268 with a 1249 stop.
Silver Rolling Contract
No change as I am still a small buyer on any dip to 17.30/17.60 with the same 16.95 stop on any long position.
Recent Comments