In markets, tentative sign of life in global risk sentiment were snuffed out yesterday on what was another dramatic 24 hours of trading with the likes of the S&P 500 seeing a morning rally of more than 1% reversed in the last hour to close flat after another 25 Handle rally in the last hour of trading. However this morning after a huge fall of over 600 points in the Nikkei sees all the main Indices on the defensive. As mentioned last week a break and close below 16900 in the Nikkei would be very bearish and this is certainly the case with the Nikkei closing just over 16400.
To mark my 1000th issue of tradernoble Daily Market Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Service which includes all my Premium Daily Commentaries and 1/5 updated emails throughout the trading session. This offer is open to both existing and new members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anybody following my new Platinum Service it made 55 points yesterday and is now ahead by 2490 points for January. Since I started my Platinum Service last June it has generated a return of over 17.500 points.
The moves have been preceded by an intra-day reversal in oil prices, that for an hour or so had ignored the warnings from the International Energy Agency issued during the European morning that the oil market rout could worsen (with prices falling to as low as $20) as the market “drowns in oversupply” as Iranian production comes back on stream. The latter, the IEA says, can more than offset production cuts elsewhere from relatively high cost producers. WTI crude, which had rallied by over a dollar in the European morning to back above $30, has since fallen to new cycle lows of $28.23.
The equity market reversal sees bond yields slip back, with 10 year Treasuries currently down up just 0.5bp to 2.04% while the VIX short-hand proxy for risk appetite is currently little changed around 27.0. Bank of America and Morgan Stanley beat their street estimates for Q4 earnings, but their stocks have both been falling since quite early on the NY session with revenue concerns evident.
In currencies the hyper-volatile NOK tops the G10- leader board, followed by AUD, SEK and the NZD. The latter drew some support after the latest Global Dairy Trade auction failed to produce nearly as bigger fall as was being suggested by the earlier drop in whole milk powder futures. The GDT price index fell by just 1.4% to be 10.5% lower on a year ago. The AUD has also drawn some support from the earlier improvement in risk sentiment, having been the worst performing G10 currency year to date, and also further reflection on yesterday’s China data and a view that however credible, they were not as bad as feared. Having traded up above 0.6950, the late day-swoon is risk markets and oil has seen the currency give back a cent to near 0.6850 this morning.
The British pound has fared worse yesterday after Mark Carney, Governor of the BoE, said the UK economy was not yet strong enough to weather a rate rise and that he wanted to see evidence of sustained growth relative to trend, rising domestic cost pressures and core inflation moving towards target. Having jumped to an intra-day high of $1.4340 shortly after core UK CPI printed as 1.4% against 1.2% expected, Sterling subsequently plunged by over two cents to a low of 1.4130 following Carney’s speech.
This morning on the economic front we already had the release of German PPI for December which came in at -0.5% slightly worse than the -0.4% expected. At 9.30 am we have UK Unemployment. This is followed at 1.30 pm by US CPI, Housing Starts and Building Permits. Finally at 3.00 pm we have the Bank of Canada Rate decision and Monetary Policy Statement. This a key meeting with analysts almost equally divided on whether or not they cut (in which case the expectation is for -0.25% so down to 0.25%, one year on from the surprise January 2015 quarter point cut). I am (just) on the side of a cut in so far as aggregate GDP growth in the past year has been close to zero, even though I would be highly sceptical further easing here will make a material difference to near term growth prospects. That said, to the extent it will aggravate the prevailing downtrend in the Canadian Dollar, it will provide some offset to the revenue loss being suffered by Canadian oil producers from the plunge in oil prices (and where Canadian crude sells for less than WTI or Brent).
March S&P 500
Wow what an incredible 24 hours of trading for the US Stock markets with the S&P trading at 1907 shortly after I posted yesterday morning only to fall to 1857 before a dramatic late rally into the close saw the S&P rally to 1882. However on the back of the 600 point fall in the Nikkei which in the process broke a long standing trend-line sees the S&P trading at 1839 this morning and in the process leaves a massive ‘Open Gap’ from last night’s Chicago close. I just cannot see this Gap left unfilled especially with the McClellan Oscillator closing with a negative reading of -259. Remember the highest negative reading that I have seen happened on August 24th when the MO closed at -325 before we had that dramatic 200 handle rally over the following few weeks. The S&P has major support at the 1831 low from August 24 and the 1810 low print from October 2014. For more macro traders my own opinion is the S&P will bottom some where between here and 1800 especially as a break and close below 1800 could see a dramatic acceleration the downside as all the major support levels will have been broken. I just cannot see the Fed allow this to happen without at least a very tradeable rally first. Today I will be a buyer on any further dip lower to 1823/1833 with a 1816 stop. Again if I am taken long and subsequently stopped out I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed. For the record yesterday after the S&P dropped in 30 handles in a few minutes of trading I went long the S&P at 1884 before we had a nice rally to 1894. Unfortunately I was too greedy as I had my T/P level at 1898 before getting stopped out of this position at 1877. Subsequently the S&P having made a new low at 1876 saw me use my 5 Handle Rule where I went long at 1881 where this rally went as high as 1890 before again rolling over and I covered this trade at 1888 to make up for my earlier loss and I am now flat.
EUR/USD
I spoke at length last night in IG Dublin as to why I am so bullish the Euro and to me it is only a matter of time before we take out the two major resistances ahead at 1.1050 and then 1.1180. A break of the latter could well see a rally to at least 1.18. Unfortunately the Euro only missed my 1.0850 buy level by 10 points after I posted yesterday which is frustrating when you see the Euro trading 120 points higher this morning and I am still flat. Today I will raise my buy level to 1.0870/1.0910 with a 1.0835 stop.
March Dollar Index
The Dollar is getting hit hard this morning on the back of the equity market hit with the USD/JPY now testing important support at 116.00. The Dollar has major support at 97.20 and a break and close below here is very bearish. Remember former Fed Chair Ben Bernanke said early yesterday morning that the Dollar had ‘run its course’ on the upside and if Bernanke was still Fed Chair the Dollar would have been slammed. Yesterday the Dollar just missed my 99.50 sell level by 8 points and I am still flat. Today I will lower my sell level to 99.10/99.40 with a 99.70 stop.
March DAX
Yesterday I was lucky with my DAX call as after the market traded lower to my revised buy level at 9560 the market had a nice rally into the New York close which enabled me to T/P at 9625 as outlined to my Platinum Members and I am now flat. This morning the DAX is trading at 9350 which is incredible when you think we were trading at 10180 last Wednesday before we had its second Key Day Reversal in four trading sessions. The DAX is now trading over 3000 points lower from its April high and 2000 points lower since the ECB failed to do more QE at its December 3 Meeting. With these kind of moves it is hard not to see the Global Economies slowing down in a more dramatic fashion. This morning the DAX has good support at 9300 and I will be a small buyer on any further dip lower to 9260/9330 with a 9210 stop.
March FTSE
My FTSE plan did not work well yesterday as after the market traded lower to my 5775 buy level I was stopped out of this position at 5725. As I mention last night if one want to be bullish of a market at these levels with lower risk given the points value of the FTSE in comparison to both the DAX and Dow then this is the market to buy. For these reasons I have bought the FTSE here at 5660 and I will leave a 5595 stop on this position. The FTSE has good support at the 5600/5650 area and I would expect a decent rally to develop from here.
Dow Rolling Contract
Just like the DAX above I was lucky with my Dow call yesterday as shortly after the Dow hit my 16070 buy level we had a nice rally to 16178 which enabled me to T/P on this position at 16110 and I am now flat. Incredibly the Dow is trading over 500 points lower from yesterday afternoon’s high print. Generally when we do see at least a temporary bottom in the market we need to see an acceleration lower and this move this morning certainly fits this criteria especially with the McClellan Oscillator getting near very oversold with a -259 print last night. For these reasons I will look to buy the Dow on any further dip lower to 15540/15610 with a 15480 stop.
March BUND
This morning the BUND has gapped above my sell level following the dramatic fall in Equity markets overnight and I am still flat. Today I will look to go short from 161.20/161.50 with a 161.75 stop.
Gold Rolling Contract
No change as I do not want to chase the Gold market higher and I will leave my buy level unchanged at 1070/1077 with the same 1063 stop.
Silver Rolling Contract
No change as I am still long at 14.19 with the same 13.65 stop.
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