Yesterday was a rather uneventful trading session as markets did some more final positioning ahead of this evening’s FOMC meeting. The US Dollar has been whipped around a little, rallying earlier in the session, sold lower, but then making a comeback later in the session. The one piece of meaty news out of the US was the NFIB Small Business Optimism Index for November, and it was strong, the strongest in fact for almost two years. You could be forgiven for thinking that US small business think that the economy is “going to be great”. (I had to use that line somewhere and sometime.) The Index came in at 98.4, up from 94.9 when the market was expecting an improvement, but to 96.7. Most of the report’s inner metrics were better, with the exception of “net compensation” and “net compensation plans” that pulled back, if still at higher levels and countered by “plans to hire” that rose to +15% from +10%.
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 152 points yesterday and is now ahead by 970 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 of over 1900 points.
The one detail that really stood out from the NFIB Survey was “expect a better economy” that swung up from -7% to +12%, having averaged -4% in the previous six months.
The Pound was bought in the aftermath of the November CPI report that saw headline inflation pick up to a stronger than expected 1.2% (1.1% expected), the highest for two years and with core inflation also ticking higher to 1.4% from 1.2% (1.3% expected). Pound strength persisted into the US session when some appetite for the US Dollar returned, taking Sterling down from over 1.27, currently trading at 1.2655. US Bond yields have also been pushing back up late in the session later in the session, lending some support to the big Dollar.
The US Bond market is as well aligned for the FOMC as it has been for quite some time. Through this year, the market (rightly) has been much more cautious on the extent of Fed tightening (zero to date). This time last year, the median FOMC Fed funds projection for the end of this year was 1.4%. It will close the year at 0.5-0.75%. The market is expecting that this time next year the Fed Funds rate will be 1-1¼% which was the median Fed dot point projection in their September forecasts, a forecast that embodies two more rate hikes in 2017, an expectation that also aligns with my own forecast. The market continues to fully price in a hike for tomorrow.
The AUD this morning is continuing to hug 0.75, having tested the 0.7520 area overnight. Yesterday’s NAB Business Survey for November and the Chinese November economic data came and went without too much market fanfare, the Survey revealing some slowing in Business Conditions (to average levels) but Chinese growth in Industrial Production, Retail Sales and fixed assets investment mostly a little better than expectations. The AU bulk resource prices overnight showed iron ore down 15 cents and steaming coal up 30 cents, but met coal off a larger $7.50. I did note in the Chinese data that the early sizeable annual declines in Chinese coking coal production are now beginning to ease up on more lenient production guidance.
This morning on the economic front we have UK Jobless Claims Change at 9.30 am and this is followed at 10.00 am by Euro-Zone Industrial Production. At 1.30 pm we have US Retail Sales and PPI. This is followed at 2.15 pm by US Industrial Production. Finally we have the FOMC Rate announcement at 7.00 pm and the Yellen press conference at 7.30 pm.
For the FOMC, the market will be looking to see the Rate hike and then turn its attention to the details of the Statement and the forecasts. Likely, its forecasts for two further hikes in 2017 (the September forecasts) will not be altered much at all and its longer term forecast of 3.0%. Then, the tone and tempo of Fed Chair Yellen’s comments on the economy, inflation and policy at her press conference 30 minutes after the release of the FOMC Statement and Projection Materials . Markets will be interested in her comments on the economy’s growth and inflation tempo, tolerance to the rise in the US Dollar as well as their thinking on the appropriateness and possible reaction to Trump fiscal stimulus.
December S&P 500
My S&P plan worked very well yesterday with the market initially hitting my average 2271 sell level before trading to a 2264.50 low and this sell-off enabled me to cover my short position at my revised 2266 T/P level and I am now flat. Today I will raise my buy level slightly to 2241/2247 with a 2235 stop. I will also look to sell the S&P on any rally higher to 2280/2286 with a 2292 tight stop. If I am hit on any of these trades ahead of the FOMC Meeting I will look to exit ahead of the Statement release at 7.00 pm. Otherwise, my calls will work over the announcement and then we will see what Yellen has to say in her press conference. As I mentioned at length in both the S&P yesterday and the Dow on Tuesday that the US stock market is one of the most extended in history and If this was not December I would be looking to fade this move more aggressively but given the fact that it is December I will wait.
EUR/USD
Unfortunately the Euro again missed my buy level before trading higher. The Euro needs to break last Thursday’s 1.0875 high print to cancel the subsequent downside Key Day Reversal which occurred off that high. Today I will raise my buy level slightly to 1.050/1.0590 with a 1.0520 tight stop. I still do not want to be short the Euro at this time.
December Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 101.50/101.90 with a 102.25 stop which is just above the November high at 102.05. I still do not want to be long the Dollar at this time as in my opinion a Fed Rate hike is fully priced into the market.
December DAX
As I mentioned yesterday, there is no point in trying to sell the DAX despite its extreme overbought condition. Today I will leave my buy level unchanged at 11110/11160 with the same 10065 stop.
December FTSE
My long 6905 FTSE position from Tuesday finally worked out yesterday with the market having a nice rally to 6970 and this rally enabled me to cover this position at my 6920 T/P level and I am now flat. Despite yesterday’s rally the FTSE continues to underperform the other major Indices and this heavy price action could be a warning that the stock markets in general are in the very late stages of this mega eight year rally. The strength of Sterling is not helping the FTSE at this time. Today my only interest in buying the market is on any dip lower to 6870/6910 with a 6840 stop. Despite the heavy price action I do not want to be short ahead of the December Contract Expiration on Friday.
Dow Rolling Contract
The Dow made another new all-time yesterday as yet again one short position after another gets stopped out. As I have said over the last couple of days the price action reminds me of what happened in the lead up to the 1987 crash. Yesterday my Dow plan worked well with the market hitting my 19915 sell level before having a sell-off to 19850. This sell-off enabled me to cover this position at my revised 19885 T/P level as I was also short the S&P at the same time. Subsequently I emailed my Platinum Members to go short the Dow again at 19950 and this second short position was covered just before the close at 19920 and I am now flat. I have now made back all the points lost in the Dow from my short position last Friday evening which got stopped out on the ‘’Open’’ on Sunday evening. With the market so close to the round number 20,000 it is only a matter of time before we hit this level. Today I will again look to sell the Dow on any rally higher to 19995/20060 with a 20110 stop. If I am taken short and stopped out of this position or I manage to T/P on any short position I will again be an aggressive seller on any further rally to 20200/20350 with the same 20450 stop. Given the volatility I have to use wider parameters.
March BUND
Unfortunately the Bund continued to rally after I posted yesterday morning and I am still flat. The Daily Sentiment Index reading for the US Bond market is very low at just 6% bulls and if the Bond markets sell-off after the FOMC this evening the risk reward from here is to be a buyer rather than a seller after the huge move witnessed over the past couple of months. Today I will raise my buy level in the Bund to 161.10/161.45 with a 160.70 stop.
Gold Rolling Contract
My Gold plan worked well with the market hitting my 1155 buy level before rallying overnight to trade at 1163 as I write this commentary. As I wanted to continue with my theme of banking points when available for the least amount of risk plus the fact that I am still long Silber I emailed my Platinum Members to exit this position for a small gain at 1157.50 and I am now flat. There is no doubt that there are some big players trying to protect the 1150 support level and today I will again look to buy Gold on any dip lower to 1145/1154 with a 1138 stop.
Silver Rolling Contract
No change as I am still long from last week at 17.14 with the same 16.60 stop. Remember as long as Silver stays over its 16.15 low then the market is fine. However we really need a break and close over 17.55 for the market to turn positive.
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