Seemingly there were many “light bulb” moments yesterday after I posted, when competing ideas, that have been around awhile, suddenly gain traction and markets run with them. It has produced some inconsistent moves but in isolation they have been explained away. The most consistent and largest move is the stronger USD and that has been an overriding force. Market volatility has shot higher, with equities lower; based on Greece concerns and stronger US data. Bond yields are lower, based on Greece. Commodities aren’t sure how to take the prospect of rate hikes and are lower. And JPY is an underperformer, seemingly on the (already known) prospect of a weak CPI later this week and possibly more BoJ QE.
There wasn’t much new news on the Greece concerns, some were also positive- Greece could combine all their June payments together if the IMF agrees, which gets them another two weeks for agreement with the IMF. But periphery Bond Yields are higher, and Bund Yields are lower – a sign of bunkering down and risk aversion.
The USD is stronger, also a good sign of risk aversion, but also of the stronger US data. Finally! They weren’t extraordinary but good enough for a return to considering higher US Interest Rates this year. Durable Goods Orders, House Prices, Consumer Confidence were all better than expected and there were some decent upward revisions to prior data. That might explain the stronger USD, and perhaps the fright taken by equities, but not the big drop in yields.
The JPY was the underperformer, with USD/JPY rising above 123 for the first time since 2007. That would be consistent with stronger US growth but not with the risk aversion or yield compression also about last night. The IMF noted (over a day ago) that growth needed to pick up and the BoJ might have to do more QE. We also suspect CPI to underwhelm but that is not until Friday and the Tokyo measure has already been out for April and it wasn’t encouraging.
This information combines to suggest that there was some positioning adjustment going on. JPY should be weaker, equities are going to adjust if US growth is strong enough for a hike but not too strong to support even better earnings. While there have been big moves higher in yields over the last month; so nervousness about Greece is a good trigger for adjustment. With the competing forces, it could be a little trickier for a consistent theme in markets until one of the factors is definitive enough to override the rest. Let us hope that it is a stronger US Economy rather than a Greek default.
This morning on the economic front we have German GIK Consumer Confidence which is due at 7.00 am. This is followed at 12.00 pm by US MBA Mortgage Applications. At 2.45 pm we have US Services PMI. Finally at 3.00 pm we have German Retail Sales.
June S&P 500
Unfortunately my S&P plan did not work out at all yesterday after what has been a very good year so far until yesterday. Shortly after I posted I was stopped out of my long 2120 position for a small loss at 2116 before going long again at 2112 only to be also stopped out this position at 2105 and I am now flat. There is no doubt that 2015 has been a challenging year for trading with so many cross-currents effecting all markets at this time. As we know from history that any time we have a strong Dollar it causes havoc in Emerging Markets and this year has been no exception. However as I have mentioned countless times over the past six weeks for me to turn bearish of the S&P we need to see a close below 2065/2070 followed by another close below the major support at 2035/2040 which has so far held the market four times this year. However weak the market was yesterday it did have a strong finish. Today I will be a small buyer on any dip lower to 2095/2101 with a 2089 stop. To be honest despite the very weak price action yesterday I am reluctant to go short as I still do not believe that the Fed will move rates when they meet next month. If I am taken long and subsequently stopped out of this position I will use my ‘5 Handle Rule’ to go long again with a stop below whatever new low is printed.
EUR/USD
By the time that you got to read my market commentary yesterday morning the Euro was trading at the bottom end of my buy range at 1.0890 at 7.00am. The market briefly had a small rally to 1.0940 following this low but unfortunately I had no order in to get out and I am still long. I will leave my stop the same at 1.0835 and if I am stopped out of this position today I will be a more aggressive buyer in front of 1.0810 with a 1.0770 stop. My own opinion is that the 1.0800/1.0840 major support level will hold for now despite the Greek worries. The volatility in the Euro has been insane over the past few weeks with a 900 point rally followed by a 550 point fall in the past week.
June US Dollar Index
Thankfully by the time you got to read yesterday’s commentary the Dollar Index was trading at the top of my sell range at 97.20 and the main reason for the huge move higher in the Dollar was the 200 point rally in USD/JPY which is now trading at its highest level since 2007 as the Japanese Economy (despite a huge amount of QE) has shown no growth of any note. I am still short and today I will move my stop slightly higher to 97.70. The main reason why I have move my stop higher is the fact that we are trading outside the top of the Bollinger Band and at the top of the Williams Index.
June DAX
Thankfully we had no buy order in the DAX yesterday which got slammed with the market having been closed on Monday. I am still flat and today I will be a small buyer on any further dip to 11480/11530 with a 11420 stop. My only interest in selling the DAX is still on a rally higher to 11820/11870 with a 11910 stop.
June FTSE
The FTSE just missed my 7045 sell level by five points shortly after I posted before the market got slammed in afternoon trading. This move lower eventually hit my buy level at 6945. I am still long and I will leave my stop the same at 6915 on this position. I will also move my sell level lower to 6990/7015 with a tight 7030 stop.
Dow Rolling Contract
Unfortunately my concern not to be short the Dow on a ‘Tuesday’ proved fruitless yesterday with the market getting hammered in early afternoon trading before having a late rally into the New York close and I am still flat. Today I will be small buyer on any dip lower to 17940/17990 with a 17890 stop. My only interest in selling the Dow is on a rally to 18170/18220 with an 18260 stop.
June BUND
Just like the Euro and Dollar above the BUND was trading at the top of my sell range by the time you got to read my blog as the Bund spiked higher on the ‘open’. I went short at 154.50 only to be stopped out of this trade for a small loss at 154.80 and I am now flat. Today I will again be a small seller on any further rally higher to 155.40/155.70 with a 156.05 stop. I will also move my buy level higher to 154.00/154.30 with a 153.70 stop.
Gold Rolling Contract
Unfortunately my long 1212 Gold position got stopped out before lunch yesterday at 1199. Gold continued to sell-off with the market eventually hitting my second buy level at 1190. I am still long and today I will leave my stop the same at 1179. There is no doubt that there is some major selling at the 1220/1230 resistance level as every attempt over the past three months to break this resistance has failed.
Silver Rolling Contract
I was finally stopped out of my long 17.10 Silver position for a small loss at 16.80. I am still flat and today I will again look to buy the market on any dip lower to 16.40/16.70 with a 15.90 stop,
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