Another 24 hours of extraordinary volatility with the Dow having traded down over 550 points before mounting a 400 point rally in the last two hours of trading only to get hit again overnight on the back of the Shanghai and Nikkei both closing down over 3%. Interestingly the NASDAQ closed flat yesterday despite the Dow finishing 250 points lower. In Europe the E600 European index down a cool 3.2%, while the Italian MIB 30 lost nearly 5% as concern again mounts for the Italian Banking Syatem. Oil again was front and centre with WTI down the best part of two dollars to $26.55, down 6.7% and Brent down $0.51 to $28.23 a decline of 1.7%.
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Despite getting stopped out of my long FTSE and Dow positions near the lows of the day my Platinum Service still generated 255 points yesterday and is now ahead by 2745 points for January. Since I started my Platinum Service last June it has generated a return of over 17,500 points.
Oil market sentiment was poor with more wire coverage of oversupply from the likes of a story in the FT that the oil market “could drown in oversupply” and a report that the first US oil tanker arrived in Europe following the lifting of US crude oil export restrictions.
By those standards, currency markets were becalmed, with Bloomberg spot DXY index up 0.1% against 0.4% declines in the EUR, the JPY, and the CHF. With the decline in oil prices, the NOK and the RUB both had hefty falls (by 0.5% and 2.1% respectively), while the CAD made up some ground with CAD investors relieved that the Bank of Canada left rates on hold. Those with memories of the year ago will recall that a surprise move by the Bank of Canada was followed weeks later by the first of two cuts from the RBA. Nearly as many economists had forecast a cut from the Bank of Canada as picking no change.
The AUD trades north of 0.69 this morning (following intrasession equity market volatility), having traded down below 0.683 but then relatively resilient in the circumstances given the negative sentiment towards oil/commodities yesterday. Base metal prices closed lower though not to the extent of oil, with the LMEX base metals down 0.92%. Spot Chinese iron ore prices eased back $1.17 yesterday to $41 61 amid declines in Dalian iron ore futures and Chinese steel rebar futures prices on the day. Speaking yesterday on CNBC at the Davos forum, Australian Finance Minister Cormann made some comments about the Aussie dollar noting that the market determines its value, that the lower value of the Aussie helps competitiveness and that the challenge is for Australia is to strengthen competitiveness further. Nothing out of the ordinary here.
US data was on the softish side with weaker than expected Housing Starts and somewhat lower than expected monthly headline and core CPI. The monthly UK labour market report was better than expected. The Atlanta Fed nudged up its estimate of Q4 GDPNow to 0.7% from 0.6% (due Jan 27).
This morning on the economic front we already had the release of French Manufacturing Confidence which printed 102 versus 103 expected. At 10.00 am we have Euro-Zone CPI. Today is the first ECB meeting for this year with the announcement due at 12.45 pm. While no change in policy is widely expected to be announced, forward medium to longer term inflationary expectations have been pulling back with the declining commodity prices and in oil and this is something the ECB will be watching closely. It’s to more than conceivable get some more strong words from President Draghi as far as his determination to avert deflation in his press conference at 1.30 pm. (Whether any such then translate to more accommodative monetary policy is another matter.)
Also at 1.30 pm we have the US Weekly Jobless Claims and the Philly Fed Business Outlook. Finally at 4.00 pm we have the US Crude Oil Inventories.
March S&P 500
As mentioned in my opening economic commentary yesterday was one of the most extraordinary volatile past 24 hours in a very long while with the S&P having traded as low as 1830 after I posted before rallying to 1855 then getting crushed to break the October 2014 low at 1810 with a 1804 low print before mounting a near 80 Handle rally only to get slammed again overnight on the 3% fall in both the Nikkei and Shanghai Indices. The S&P traded lower to my 1832 buy level shortly after I posted before having a nice rally shortly after the US Markets opened which enabled me to T/P on this position at my 1845 level and I am still flat. If anyone used my 5 Handle Rule they would have made a lot of points after the S&P rallied off its 1804 low print which would have put you long in theory at 1809 but the move was so fast you had to be quick. Again any ‘Open Gap’ in the S&P gets filled and while it took time yesterday and you had to be brave as the market certainly filled it on the huge move higher off the 1804 low. I am hoping that yesterday’s low will hold for a while as a break and close below 1800 will be very bad technically as it opens up the possibility of a move lower to 1680/1730. The McClellan Oscillator closed with a very negative reading of -281 yesterday so I certainly would not be chasing the market lower and will be looking for opportunities to go long. Given the volatility it is so hard to pick levels to buy as the market is trading in moves of 10/15 Handles every few minutes but today I will look to buy the market on any further dip lower to 1830/1840 with a 1823 low. I will also be an aggressive buyer in front of 1809 with a 1795 stop.
EUR/USD
In contrast the Currency markets are trading in very narrow ranges. Yesterday the Euro traded lower to my 1.0895 buy level and after the Equity markets started to rally I covered this position at 1.0920 and I am now flat. I am going to stay flat until we get the ECB Meeting and Dragi press conference out of the way especially after what happened at the last meeting which generated a Key Day and Key Week Reversal in both the EUR/USD and the DAX. Remember before the last meeting the Euro was trading at 1.0520 and the DAX at 11300. I would expect Dragi to try and talk the Euro lower and I will then look to buy the market on any dip to 1.0770/1.0810 with a 1.0735 stop.
March Dollar Index
The Dollar also traded higher to my 99.15 sell level and as I want to be flat ahead of the ECB I have covered this position at 99.00 and I am now flat. Today I will again look to go short on any spike higher to 99.70/100.10 with a 100.40 stop. Remember a break and close over 101 is bullish as it breaks the double top from 2015 at 100.39 and 100.65.
March DAX
The DAX plan worked well yesterday. However it took a long time to hit my 9330 buy level before the market had a nice 300 point rally which enabled me to T/P on this position at my 9410 T/P level and I am now flat. I am going to stay flat until we see what Dragi has to say later. If the market dips I will again look to go long from 9270/9330 with a 9230 stop. Again with the MO so negative it is hard not to look to buy dips across all the main Indices.
March FTSE
Unfortunately the FTSE continues to be the weakest of the major Indices with the FTSE now officially in Bear market territory as it is now off 20% from its high. Unfortunately I was stopped out of my long 5660 position near the lows of the day at 5595 before the market had a nice rally and I am still flat. Subsequently the FTSE traded higher to 5720 overnight but is again under pressure this morning. Today I will once again look to buy any dip lower to 5570/5620 with a 5530 stop.
Dow Rolling Contract
The Dow got hit the hardest of the US Stock Indices yesterday with the market trading as low as 15450 before having a huge 500 point rally off these lows before getting hard again this morning on the back of China and Japan. Yesterday’s move lower saw me go long the market at 16590 only to be stopped out of this position at 16490. Subsequently I emailed all my Platinum Members to buy the market again at 16520 before seeing this market trade to a high of 15965 overnight which enabled me to cover this position at my 15660 T/P level and I am now flat. Given how weak the McClellan Oscillator closed I will again look to buy the Dow on any dip lower to 15530/15630 with a 15445 stop which is just below yesterday’s low print.
March BUND
My BUND plan worked well as the market traded higher to my 161.25 sell level before having a nice fall to 160.80 which enabled me to cut this position at my 160.95 T/P level and I am now flat. Despite the very soft equity markets the BUND is struggling to break higher which is understandable when you consider the yield is only just 40bps. Today I will again look to sell the BUND from 161.15/161.40 with a 161.65 stop.
Gold Rolling Contract
I still do not want to chase the Gold market higher and I will leave my buy level unchanged at 1073/1080 with a 1065 stop.
Silver Rolling Contract
No change as I am still long at 14.19 with the same 13.65 stop.
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