They say you’re only as good as your last trade. That may be so, but the last (and some would say only) good trade from 1980s Anglo-American pop band Katrina and the Waves – Walking on Sunshine – is 30 years old this year and the rights to the song were sold to Bertelsmann last night for a cool £10mn. The song still generates over £1mn. a year in royalties and endorsements. On the subject of one hit wonders, it was the US Non-Manufacturing ISM that inspired almost all of yesterday’s price action. Following on from Dennis (the Menace) Lockhart’s comments on Tuesday night that the onus was on the data to prevent the Fed from lifting rates in September, yesterday’s Report fell squarely into the category of incoming data releases that argues strongly in favour of September ‘lift-off’.
The headline reading of 60.3 (up to 56.0 in June) punched the lights out relative to the 56.2 expected. Detail are equally impressive with New Orders rising to 63.8 from 58.3, Business Activity to 64.9 from 61.5, Prices Paid to 53.7 from 53.0 and Employment particularly strong, lifting to 59.6 from 52.0. Remembering that services makes up 80% of the US economy, this employment sub-series is far more relevant than its Manufacturing ISM equivalent as a guide to tomorrow’s Non-Farm Payrolls Report. And much more so than the widely discredited ADP employment report and where the disappointing July print of 185k has limited information value regarding the risk to the current consensus for tomorrow’s Payrolls print of +225k.
We also had the June US Trade numbers yesterday but where the $43.0bn deficit is close to what was assumed in last week’s Q2 GDP estimate and so has limited implications for revisions (other data since the GDP report is however pointing to an upward revision to the 2.3% Advance reading). Earlier, final Eurozone services PMIs came in little changed from the ‘flash’ estimates, while the (first and only) UK services reading slipped to 57.4 from 58.4, beneath the 58.0 expected. This didn’t prevent The British Pound from being the second beast performing G10 currency overnight (GBP/USD +0.25%).
The worse performing currencies have been the NZD, JPY and AUD. Commodities generally remain pressured, while the Fed policy connotations of the US ISM report helped lift USD/JPY above its recent ¥124.58 high to briefly pierce 125 for the first time since June 8.
This morning on the economic front we have German Unemployment at 8.55 am. This is followed at 9.00 am when the ECB published its latest Economic Bulletin. At 10.00 am we have Euro-Zone Business Climate Indicator. At 1.00 pm we have German CPI. Finally at 1.30 pm we have US GDP and the Weekly Jobless Claims.
September S&P 500
If you go back to 1950 the S&P would have a 10% correction at least every 18 months. Today we are currently 46 months since the last 10% correction on October 3 2011 which is the third largest advance since 1950. Trying to put this market into perspective on what has been a very difficult year for trading US Stocks we are now over 1400 days since we have had at least a 10% correction which in itself is very scary. This is one of the main reasons why I am so nervous about this market and why I consider the upcoming September/October time frame froth with danger. However until we break and close below the 2035/2040 now major support level it is very difficult to be short for more than a few hours. The price action in the Dow is particularly ugly and that it is no coincidence that since Apple joined the Dow, this market has started to run into trouble. My S&P plan did not work out yesterday as by the time the European Markets opened the S&P was trading at my 2095 sell level before very quickly stopping me out of this position for a small loss at 2101 and I am now flat. The S&P is finding it very difficult to hold the 2100 level as yet again the market had a nasty fall having made its intra-day high at 2107. Today I will again try the sell-side on any rally higher to 2100/2107 with a 2112 stop. I still do not want to long the market at this time.
EUR/USD
Overnight the Euro traded higher which enabled me to cover my 1.0895 long position at my take profit level at 1.0935 as outlined earlier to my Platinum Members and I am now flat. Today I will again be a small buyer on any dip lower to 1.0860/1.0890 with a 1.0830 stop.
September Dollar Index
As I am already long the Euro I will use any sell-off in the Dollar today to 97.75 to cover my 98.10 short position and stand aside. If I manage to cover this short position I will again look to go short on any rally higher to 98.45/98.75 with a tight 98.95 stop.
September DAX
Yesterday’s price action in the DAX took me totally by surprise but thankfully I had a tight stop at 11480 on my 11420 short position and I am now flat. There is no doubt that the DAX has been one of the most difficult markets to trade this year with a lot of the moves happening for no apparent reason. Today my only interest in selling the DAX is on a rally higher to 11730/11780 with a 11820 stop.
September FTSE
The FTSE opened strongly yesterday morning with the market eventually hitting my 6700 sell level. I am still short and today I will leave my stop the same at 6735.
Dow Rolling Contract
My Dow plan worked well yesterday as shortly after the US Markets opened the Dow rallied higher to my 17640 sell level before having a nice sell-off which enabled me to cover this position at 17550 as outlined earlier to my Platinum Members and I am now flat. There is no doubt that both the strong Dollar and Apple are weighing heavily on the performance of the Dow at this time. Today I will again look to go short on any rally higher to 17650/17700 with a 17740 stop.
September BUND
The BUND got hit hard to the downside yesterday as nervousness re-surfaces on a Fed Rate hike next Month. I am still flat the BUND and today I will use any further sell-off to 152.20/152.60 to go long with a 151.80 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip to 1065/1075 with a 1057 stop.
Silver Rolling Contract
No change as I am still long at 14.45 with the same 14.10 stop.
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