The Dow rallied 1.55% or 298 points yesterday in one of the fastest moves higher that we have witnessed in this incredible Bull trend which is over eight years old. The S&P Futures market traded over 50,000 Contracts in a one minute frenzy after US Steel announced that they would re-hire as many as 10,000 US workers. This frenzy occurred at 6.21 pm Irish time with every short position getting stopped out. This could be a violent move but could end abruptly towards the end of the month, with an even more violent and prolonged collapse in 2017, which could cause the biggest crash in history. Remember from last month we still have a confirmed Hindenburg Omen and this bearish signal is valid until March 2017.
To mark my 1225th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 35 points yesterday and is now ahead by 682 points for December having made 1971 points in November and 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain over over 1900 points.
Despite Australian GDP growth coming in at -0.5% q/q (well below expectations of -0.1%) and being the lowest quarterly figure since the 2008 Financial Crisis, market reaction was mooted. Declines in the Aussie reversed and actually ended the day up 0.2% while the OIS market has only marginally extended pricing of RBA rate cuts by July/August next year to 30% (from 20% just prior to the release). While the headline decline was affected by one-offs such as weather affected construction, I do not see some broad-based weakness which will prompt the RBA to reassess their forecasts for growth and inflation in 2017.
Internationally, there was broad-based optimism in anticipation of the ECB extending its asset purchase programme this afternoon. European equities surged, with the EuroStoxx up 1.3% and the FTSE up 1.8%. US equities performed similarly with the S&P reaching a new record high of 2242, up 1.2% in a broad based rally. The exception to that being Health Care stocks which actually fell 0.9% following comments by US President-elect Trump that he is “going to bring down drug prices…I don’t like what’s happened with drug prices”. Co-incidentally, Time magazine named him its Man of the Year.
In the FX space, there was slight US Dollar weakness down 0.25% across the board. The British Pound was the clear underperformer, down 0.5% following a very weak UK Industrial Production number. Industrial Production declined by 1.3% m/m, the weakest read in four years. Although a lot of the decline was due to a temporary shutdown of the Buzzard Oil Field in the North Sea, the read does serve as a reminder of likely weakness ahead once the formal Brexit mechanisms are activated – still likely to be in March 2017 according to Prime Minister May. In other political news, Italian PM Renzi has said he will step down on Wednesday and the Italian Senate approved the 2017 Budget.
For Australia, while a weak GDP figure might have been expected to have a long-lasting effect on the Aussie, this was not to be the case. The Aussie clawed back its losses following the release (initially down 0.6%) to end the day up 0.2%. Other currency moves broadly followed the movements in the US Dollar with the Euro up 0.3% and the Kiwi a little better at +0.5%. In a possible redux to the start of the year, China’s foreign reserves showed their largest monthly decline since January – down $69.1bn. Some of that relates to USD movements but the takeaway is that Chinese authorities have been selling down reserves in order to maintain a stabilising force on the Yuan from large capital outflows; note reserves currently stand at $3.1 trillion. The recent capital control measures should be enough to avoid the panic of last January when capital outflows surged and the CNY came under pressure. This will be crucial to monitor for the Aussie in the months ahead – if you recall the AUD/USD went sub $0.70 in the event.
As for rates, there was little data to react to. US Treasury yields fell 4 bps in a quiet session to 2.35%. Australia CGS fell 2.5 bps to 2.80%, with similar moves in Bunds which were down 2.6 bps to 0.35%. UK Gilts rallied a bit more, down 5.9 bps, likely helped by that weak Industrial Production read, and are at 1.36%.
In commodities, oil declined 2.2% to $49.81 a barrel (WTI measure). The oil market appears to be getting a reality check following the optimism of the OPEC production ceiling. Although OPEC hopes to get oil into a $55-60 a barrel range, non-OPEC producers are not part of the deal and OPEC has invited 14 non-OPEC countries to meet on 10 December. The most significant swing producer, US Shale Oil producers are not at the meeting, and given they have a breakeven production cost of $40-50 a barrel, the oil price is likely to remain in the $40-50 a range for some time.
Finally in Central Bank news, Canada left rates on hold as expected. The Statement was neutral, but reinforced they are unlikely to follow the US in lifting rates any time soon.
On the economic front, the big event coming up is the ECB meeting at 12.45 pm. Market focus will be on whether the current Asset Purchase Programme is extended beyond March and assuming an extension of the timeline any potential tapering of asset purchases in 2017. My view is an extension is guaranteed with the question on whether the extension is done at the same rate or a tapering of purchases occurs. There a number of issues here involved, including the scarcity of bonds which will need to be addressed. As usual the Dragi press conference at 1.30 pm promises to be a lively event.
Also at 1.30 pm we have US Weekly Jobless Claims. Finally at 2.45 pm we have the Bloomberg Consumer Comfort Index.
December S&P 500
A combination of better US economic news and the expectation that the ECB will announce more stimulus at their monthly meeting today saw the S&P rocket to new all-time highs on what must be of the most dramatic trading days that I have witnessed in a very long time. I said to you that Trump getting elected was the best news for trading markets in years as we are guaranteed plenty of volatility with 1/2% daily moves now nearly the norm. It is important that if you are having a good day like we were yesterday until 6.20 pm that you do not have to chase every trade. I know many of you did not trade last night having banked the points but after I went short the Dow and got stopped out 2 minutes later I did not sell the S&P as I wanted to keep some of the hard earned points made earlier. The S&P has now rallied over 210 Handles since its post Trump victory low at 2028 in what must be one of the fastest four week moves in history. This is not sustainable hence my opening commentary that we could finally be in for a crash in 2017 especially with PE’s so high. When you get moves of this ferocity it is very difficult to try and pick a top but my long term target has always been from 2290/2330 and somewhere in this region might be a place to try and pick a more macro top. Again the charts will tell us when this happens, but as I have said for the last few years until we get a sell extreme that lasts for more than a few days it is very difficult and expensive to be short. Last night the S&P closed above its Daily Bollinger Band and at the top of the Williams Index. Meanwhile the McClellan Oscillator closed with a +179 print. If the MO was at +230/260 I would be more comfortable in going short so we may see this rally extend for another day first. The next resistance for the S&P is from 2253/2259 and I will be a small seller in this area with a 2265 stop. The S&P has support at 2230 and below here nothing until the previous high at 2210/2214. Today I will be a small buyer on any dip lower to 2227/2233 with a 2222 stop. If I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer on any dip lower to 2210/2216 with a 2204 stop.
EUR/USD
My long 1.0725 Euro position finally worked out with the market hitting my 1.0755 T/P level and I am now flat. As usual with the ECB and Dragi press conference I will stay flat until the announcement. As long as the Euro can hold the key 1.0675 pivot point then I am happy to buy the dip with a tight stop. Today I will again look to buy the Euro from 1.0680/1.0720 with a 1.0645 tight stop. Given the size of Monday’s Key Day Reversal I do not want to be short the Euro at this time.
December Dollar Index
My short 100.60 Dollar position also worked well with the Dollar trading to a 99.95 low print which enabled me to cover this position at my 100.35 T/P level and I am now flat. It is key for short positions that the Dollar holds below the 100.60/101.00 resistance level and today I will again be a seller in this area with a 101.30 tight stop.
December DAX
Wow when I said the DAX had strong resistance at 10800/10850, to see the DAX rally over 200 points once this resistance was broken as yet again one short position after another got stopped out. Thankfully fearing this aggressive move higher we have had no sell levels in the DAX over the past few weeks. Yesterday’s move is a bullish breakout and today I will move my buy level higher to 10940/10990 with a 10895 tight stop.
December FTSE
My FTSE plan worked well as after the market traded higher to my 6890 sell level I emailed my Platinum Members to exit this position for a small gain at 6865 and I am now flat. Today I will move my buy level higher to 6855/6885 with a 6820 stop. I do not want to be short the FTSE at this time as it is too risky given the breakout yesterday.
Dow Rolling Contract
The Dow has now rallied over 2000 points since the morning of November 9. This is an incredible move as just like the S&P above with every short position getting killed. The Dow’s Relative Strength Index (RSI) is now at its most overbought level in over 20 years, since November 25, 1996. That day the RSI peaked at 87.83 and the Dow made its high the next day. November 26, 1996. The Dow declined for the next 13 days before resuming its rally. Yesterday the RSI closed at 82.34. I am not saying that history is going to repeat itself but given how overbought the market is trading we are due a correction first before we see another rally into year end. Yesterday my Dow plan did not work out as after I went short at 19360 I was stopped out of this position one minute later at 19440 and I am now flat. Yesterday was another great example of how important it is to have a stop in the market. The next resistance level for the Dow is from 19650/19710 and I will be a small seller in this area with a 19760 stop. Given how overbought and over extended the Dow is trading I do not want to be long the market at this time.
March BUND
I am still flat the Bund and I will now raise my buy level slightly to 160.80/161.20 with a 160.45 stop. I still do not want to be short the BUND at this time.
Gold Rolling Contract
I am still flat Gold and today I will now raise my buy level to 1159/1167 with a 1151 stop.
Silver Rolling Contract
My long 16.60 Silver position finally worked out as the market to 17.30 which enabled me to cover this position at my 17.05 T/P level. As I feel naked without a long Silver position, I have bought Silver again this morning at 17.14 with a 16.60 stop.
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