Very much a risk-off 24 hours for markets with Equities and some Commodities taking the brunt after Chinese stocks lurched lower in afternoon trade to finish down an eye-glazing 8½% on the day. As most members know that I am away in Florida for another 10 days so my morning commentary is coming out a few hours earlier than normal due to the time difference. A year ago, the Shanghai composite was 2,177; yesterday it closed at 3,752. In between of course, it rose to over 3,200 last December and by June had peaked at 5,166. Margin calls, and for some stocks trading halts only damage already brittle sentiment at a time when Chinese growth sentiment is under a cloud.
Growth sentiment has not been helped by more “earthy” Chinese indicators such as last Friday’s Caixin Manufacturing PMI that printed much lower at 48.2 and yesterday’s Industrial profits data down 0.3% y/y to June, continuing stalling Industrial Earnings since last August-September. The selling in Asian equities carried over into Europe, with the Eurostoxx 600 index down 2.2%, and not even a better than expected German IFO Survey for July – Germany’s premier business activity barometer – could save the day for European bourses. Not only did German Business Expectations surprisingly improve (the lower Euro is one explanation this writer can think of; there may well be others), but German business’ “Current Assessment” also improved suggesting that business activity has consolidated through the middle of the year after some gains from the latter part of 2014.
The selling in US markets was much less severe, but continued, the S&P 500 closing down 0.73% as the Fed prepares to start their meeting TWO DAY Meeting this afternoon. US Durable Goods Orders were somewhat better than expected in June, but there were some nasty downward revisions to May orders that were even larger, a dampener over the recent pace of Business Equipment Investment. The Atlanta Fed’s GDPNow for Q2 remained at 2.4%, GDP being released Thursday along with the BEA’s annual revisions. In this risk-off mood, Metals and Oil were sold lower, LME copper by 1.43% and Brent by 3.09% to $52.93/bbl, Oil prices weighed down also by more than ample supply. Spot Qingdao 62% fines Iron Ore rose $0.93/t to $52.93.
US Treasury Yields declined while European Bond Yields were mixed. For Currencies, there seem to have been several cross threads but for the AUD, it’s only been a “sell” signal, the Aussie remaining very much on the defensive, this morning on its overnight lows, selling coming from negative Chinese growth and risk-off sentiment. But neither has it been a wholesale rush back to the US Dollar. The yen has garnered some “safe haven” support, while the Euro also managed to make some gains, supported by the IFO Survey with the Euro closing back above 1.11. The spot Bloomberg US$ index shed nearly 0.5%.
This morning on the economic front we have UK GDP at 9.30 am. We have no data of note due from the Euro-Zone today while at 2.45 pm we have the US Markit Services PMI. Finally at 3.00 pm we have the US Consumer Confidence Index and the Richmond Fed Manufacturing Index. However all eyes will be on the FOMC Rate decision and Yellen press conference tomorrow evening at 7.00 pm.
September S&P 500
In my five years of lecturing trading and my 3 ½ years of writing my Daily Opinion this is the first week that I can remember when the US Stock market has sold off into an FOMC Meeting. The S&P had fallen over 60 Handles in the last four days having spent the previous eight trading sessions rising to almost a new high. Worryingly the Dow is down over 950 points since it made its new all-time high back on May 19 and there is now doubt that the serious of Hindenburg Omen’s are finally starting to kick in. There is no doubt that when both Greece and China started their downward spiral coupled with the Fed ending their QE Programme that the markets and thus the main Economies have stalled. Yesterday my long 2077 S&P position did not work out but thankfully I had a tight stop at 2069 on this position plus by the time most of you got to read my commentary the S&P was already trading at 2072 following the collapse of the Chinese Stock Market. The S&P has major support at 2035/2040 which has already been tested 5/6 times so far this year. Coincidently the 2035 level is the bottom of the Bollinger Band and I would expect the market to have a decent rally in the event that we trade back to this support over the coming days. Today I will again look to buy the market on any dip to 2055/2061 with a 2049 stop as I still expect the S&P to rally ahead of the FOMC Meeting tomorrow. If I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer in front of 2038 with a 2029 stop. Despite the negative price action I do not want to be short the S&P at this time.
EUR/USD
Frustratingly the Euro just missed my 1.0955 buy level shortly after I posted early yesterday morning with the Euro finally closing over the 1.11 level that I have mentioned over the past week. As I mentioned yesterday the US Economy has slowed over the past two months and in my Opinion the Euro is too lowly priced. There is no doubt that the strong Dollar is having a huge effect on the Dow stocks as shown by the weak earnings reported over the past week. Today I will raise my buy level to 1.1010/1.1060 with a tight 1.0980 stop.
September Dollar Index
I am still flat the Dollar and today I will lower my sell level to 97.10/97.40 with a 97.75 stop.
September DAX
The sell-off in the DAX over the past few days has been dramatic with the market loosing nearly 800 points since last week’s high print. Every short-term support has been broken and there is no doubt the margin clerks are very much in control of this market and this is certainly adding to the volatility. Since the Greek debacle started I am only trading this market in 1/3 of my normal size as some days there is no rhyme or reason as to what is going on this market especially when emotion starts to kick in. Luckily by the time the European Markets opened the DAX was already in free-fall with the DAX trading at the bottom of my buy range at 11210 before very quickly stopping me out of this trade at 11140 and I am now flat. The DAX has good support from 10930/10980 and today I will be a buyer in this area with a 10860 stop.
September FTSE
The FTSE had a very late sell-off into the New York close last night which enabled me to go long at 6440. I am still long and today I will leave my stop the same at 6380. Given how oversold the FTSE is currently trading I would expect a bounce back to the 6480/6510 resistance area before we see selling resume. If you look at the Daily Chart of the FTSE you can see we have put in a triple top and unless this top is taken out soon this market could easily fall another 10/15%.
Dow Rolling Contract
My Dow plan did not work out yesterday as shortly after the US Markets opened the Dow traded lower to my 17500 buy level before stopping me out of this position for a small loss at 17440 and I am now flat. Given the fact that the FOMC Meeting is starting this afternoon and the fact that the Dow is trading 950 points lower from its May 19 high, today I will be a more aggressive buyer on any further dip to 17360/17410 with a wider 17290 stop.
September BUND
The sell-off in the Equity markets led to a rally in the BUND yesterday which saw me go short in small size at 154.15. I am still short and today I will leave my stop on this position the same at 154.55.
Gold Rolling Contract
My Gold plan worked very well as shortly after lunch Gold traded lower to my 1090 buy level before having a nice spike higher which enabled me to cover this position at 1102 as outlined earlier to my Platinum Members and I am now flat. I still like Gold at these levels and today I will again be a small buyer on any dip lower to 1080/1088 with a 1069 stop.
Silver Rolling Contract
Shortly after lunch Silver traded lower to my 14.60 buy level. I am still long and today I will leave my stop the same at 13.80.
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