Yesterday was another reminder that we live in turbulent times, with the US Dollar Index falling 1.5% in the last 24 hours following a combination of factors and the Euro doing considerably better. The driver appears to be the increased market optimism that a solution may be found and indeed it is beginning to be worked out between Greece and its creditors. Following meetings with London bankers on Monday, Greek Finance Minister Varoufakis is pushing the idea of swapping outstanding debt for new growth-linked bonds, while withdrawing the idea – Syriza’s pre-election mantra – of a debt write down. Conciliatory words from Germany on lowering Greece’s primary budget targets and on offering some sort of OSI deal and a feeling that a number of forces are working together has been enough to see the Greek stock market rally 12%, while the Greek 10 year-bond has crashed 140 bps.
As I warned over the past few days EUR/USD has now broken the key resistance at 1.1410, which had capped the market over the previous week, to a session high at 1.1536. Yesterday’s move higher brings the EUR back to the 1.1540/1.1650 holding area that existed as the ECB’s QE deal was announced and as such this area should meet considerable selling interest. There is a long way to go to cement a deal on Greece and doubtless there will be further market ructions.
Meanwhile general market sentiment has improved as Oil holds on to a tidy supply driven bounce with WTI last at just under $53, having touched $54, some $10 above last week’s lows. The improvement in sentiment came despite the news that US December Factory Orders fell 3.4% and as the November 0.7% decline was revised lower to -1.7%. Markets were however forewarned by a larger decline in Durable Goods two weeks ago.
This morning on the economic front we have German, Euro-Zone and UK Services PMI which will be released at 8.55 am, 9.00 am, and 9.30 am respectively. The Euro-Zone will also release its latest Retail Sales at 9.30 am. At 1.15 pm the US will release its very important ADP Employment Report. Finally we have the US Services PMI and ISM Non- Manufacturing Composite at 2.45 pm and 3.00 pm respectively.
March S&P 500
The S&P had another strong finish to yesterday’s trading session with the market closing up another 1.5%. The S&P has now rallied over 70 handles off last Tuesday afternoon’s low which helped to McClellan Oscillator to close in positive territory at +118. Yesterday the S&P plan worked very well as shortly after I posted the S&P was trading at my 2018 buy level with a 2016 low before having a nice rally after the US markets opened which enabled me to cover this position at 2032 and I am now flat. As I mentioned yesterday my only interest in selling the S&P was on a rally back over 2050 and I must confess I did not expect this move to happen so quickly.
Today, given the huge run-up that we have experienced over the past 48 hours, I am going to move my sell level slightly higher to 2055/2062 with a 2066 stop. I will also be a small buyer on any dip lower to 2031/2037 with a 2026 stop. It is a very long time since I have seen markets trading with such emotion which is driving up volatility and its looks like this will continue for some time to come.
EUR/USD
The expected move higher in the EUR certainly occurred with a bang yesterday with the EUR rallying over 200 points after I posted. Unfortunately I was flat for this move higher but at least I was short the Dollar Index. The EUR move higher stopped exactly at the 1.1530 resistance level that I mentioned over the last few days but I did not have a sell level at this price myself and as a result I am still flat. Today I will be a small seller on any rally back to 1.1530/1.1570 with a 1.1610 stop. The 1.1400 area should act as good support and today I will be a small buyer on any dip lower to 1.1390/1.1420 with a 1.1360 stop. The move higher in both the EUR and Oil over the last couple of days again proves what a fantastic trading signal that the Daily Sentiment Index is.
US Dollar Index
Finally my short 94.85 Dollar position worked out yesterday with the Dollar losing over 1.5% which enabled me to cover this position at 93.90 and I am now flat. I still believe that the Dollar is still a ‘sell on rallies’ and today I will again be a seller on any rally back to 94.45/94.75 with a tight 95.10 stop.
March DAX
The DAX plan also worked out well yesterday as after the US markets fell on the weaker than expected Factory Orders Report. The DAX traded lower to my 10870 buy level before having a nice rally into the New York close which enabled me to cover this position at 10930 and I am now flat. Today I will again be a small buyer on any dip lower to 10780/10815 with a 10755 stop. My only interest in selling the DAX is still on a rally back to 10980/11010 with a 11050 stop.
March FTSE
The Ftse plan also worked well yesterday as very late in the trading session the Ftse traded higher to my 6840 sell level. The Ftse is opening lower this morning and I have decided to cover this position at 6805 and I am now flat. Today I will again be a seller on any rally back to 6845/6875 with the same 6905 stop. I still do not want to be long the Ftse at this time.
Dow Rolling Contract
What can I say about the Dow which has now rallied over 600 points off its 17035 low made last Tuesday, just when the market looked like it was going to fall off a cliff. Yet again the day of reckoning for the Dow demise has been put back. Yesterday after I posted it rallied to my 17530 sell level before having a nice sell-off on the Factory Orders Report which enabled me to cover this position at 17470 and I am now flat. Today I will again try the short side on any rally higher to 17680/17730 with a 17770 stop. Given the huge move higher over the last 48 hours, I do not want to be long the Dow at this time.
March BUND
Finally my short 159.20 Bund position worked out very well yesterday as the Bund fell hard on the back of the stronger equity markets which enabled me to cover this position near the close at 158.70 and I am now flat. Today I will again be a small seller on any rally back to 159.10/159.35 with the same 159.55 stop which has capped the market over the past week.
Gold Rolling Contract
The Gold plan did not work out so well yesterday as after I posted Gold continued to fall, with the market eventually trading lower to my 1272 buy level before very quickly stopping me out of this trade at 1263. I still believe that it is only a matter of time before Gold eventually breaks higher. For this reason I have bought Gold again this morning at 1261. I will leave a 1249 stop on this position which is just below yesterday’s 1254 low.
Silver Rolling Contract
No change as I am still long at 17.30 with the same 17.10 stop which despite the move lower in Gold yesterday did not really follow through into Silver. Again if I am stopped out of this trade, I will be a more aggressive buyer in front of 16.90 with the same 16.40 stop.
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