The big surprise overnight was the unexpected rate cut by the Australian Central Bank who cut rates to a record 2.25% low, while at the same time stating that the Australian Dollar is still overvalued. As a result, the Australian Dollar has fallen another 3% to just 0.76 versus the US Dollar. Amazingly the RBA are still saying that the Australian Dollar is still overvalued, despite the fact their currency has now weakened by over 30% in the last 12 months. This time last year it was trading at 1.10 versus the US Dollar. The RBA last reduced rates 18 months ago and as a result of these actions the Stock market closed up 1.5% at a new 7-year high.
Yesterday the US ISM Manufacturing Report for January was slightly shy of expectations, printing at 53.5 down from 55.1. The market was expecting a somewhat lower number and stocks surged as a result, helped again by rising Oil prices, with WTI now 16% higher off the lows made just last week. The ISM Report indicates good growth in US Manufacturing and the economy overall. Likewise the December Month US Personal Income and Spending Report came in at a very strong 4.3%. These strong reports helped the Dow and S&P to close higher by 1.1% and 1.3% respectively.
The core PCE deflators remained tame with no growth in the month and an annual rate of 1.3%, down from 1.4%, still comfortably below the Fed’s 2% target. All in all yesterday’s economic reports were very strong. However despite this good economic data the US 10-Year Treasuries remained subdued at just 1.66%.
This morning on the economic front we have UK Construction PMI at 9.30 am. This is followed at 10.00 am by Euro-Zone PPI. Finally at 3.00 pm we have US Factory Orders. Later this afternoon the Fed’s Kocherlakota will speak on the economy.
March S&P 500
The S&P had another wild trading session yesterday with the market down hard in the afternoon before rallying aggressively. Although it was then hit again after the first run higher but then turned around in the last two hours of trading by rallying strongly into the close. Incredibly the S&P traded nearly 100 handles with all the up and down moves yesterday. As I mentioned over the last few weeks the 1970 level is key. as a break and close below here will be very bearish opening up the possibly of a move lower to at least 1900.
Yesterday’s S&P plan worked out well as shortly after the US markets opened, it traded lower to my 1975 buy level before having a 29 handle rally to 2004 which enabled me to cover my long position at 1992. After the S&P traded 2004, the market was hot hard again trading lower to 1988 before turning around and rallying hard into the close. On the second run higher, the market hit my 2011 sell level before stopping me out of this trade at 2017 and I am now flat.
Today I have to respect the strong close and spike higher yesterday. If the the S&P can hold the 2010 support level this market is probably going to trade higher to 2030 and then the 2050/2060 next major resistance level. Today I will be a small buyer from 2012/2018 with a 2005 stop. My only interest in going short at this time is on a rally back to 2052/2060 with a 2068 stop.
EUR/USD
My long 1.1290 Euro position worked out well yesterday as the Euro continued to rally after I posted which enabled me to cover this position at 1.1350 and I am now flat. Sentiment remains at extreme levels against the Euro and after similar extreme readings in the Oil market, with just 3% bulls, this market has turned around aggressively over the last two trading sessions. In my opinion it is only a matter of time before something similar happens to the Euro. Today I will again be a small buyer form 1.1290/1.1320 with a 1.1260 stop.
US Dollar Index
No change as I am still short at 94.85 with the same 95.30 stop.
March DAX
The DAX eventually worked out well yesterday as the market had a nice rally in the afternoon to my 10850 sell level before selling-off which enabled me to cover this position at 10790 and I am now flat. Incredibly this morning the DAX is now trading 160 points higher at 10960 as the theme of 2015 continues with every dip being bought by the market. Today I will again be a small seller on any further rally to 11005/11050 with a 11080 stop. The key level to watch on the downside is 10660 and as long as we can stay over this level the DAX is fine. Today I will also be a small buyer on any dip lower to 10840/10870 with a 10790 stop.
March FTSE
Yesterday afternoon the FTSE just missed my 6660 buy level with a 6672 low before following the other major Indices higher overnight on the back of the surprise RBA rate cut. I am still flat and today I will be a small seller on any further rally to 6830/6870 with a 6905 stop. Given the extent of the move higher, I do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow plan also worked out very well yesterday as after the market sold off in the afternoon it traded lower to my 17080 buy level with a 17035 low. The market then turned around aggressively and is now trading 400 points higher off yesterday’s low. The volatility this year in all markets is just incredible and after the move higher yesterday afternoon I covered my position at 17210 and I am now flat. Thankfully I had no order to go short the Dow especially given the extent of the move higher. Today I will be a small seller on any further rally to 17510/17540 with a 17580 stop. My only interest in buying the Dow is on a mover lower to 17280/17320 with a 17230 stop.
March BUND
The Bund is opening slightly lower this morning on the back of the stronger equity markets. I am still short at 159.20 with the same 159.55 stop.
Gold Rolling Contract
The Gold plan also worked well yesterday as shortly after I posted it traded lower to my 1266 buy level. After a nice move higher overnight I have covered this position at 1282 and I am now flat. Today I will again be a buyer on any dip to 1268/1275 with a 1263 stop which is just below yesterday’s low.
Silver Rolling Contract
No change as I am still long Silver from last week at 17.30. Thankfully it is trading higher this morning and today I will raise my stop slightly to 17.10. If I am stopped out of this trade I will be a more aggressive buyer in front of 16.90 with a 16.40 stop.
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