Stock markets extended their recent rally yesterday on a combination of positive data out of the US and the UK, good bank news out of Europe and hopes of more policy stimulus ahead. In The UK, the BOE Minutes showed that, in July, the MPC once again discussed a Bank Rate cut but continued to believe that extending the asset purchase programme was still a more attractive option. Hence their decission to boost QE by GBP 50 billion. Also, the UK unemployment rate fell to 8.1% from 8.2% which was not anticipated by the market. Europe was also buoyed by news from Credit Suisse, the second biggest Swiss Bank, who announced a higher cost cutting target together with a boost in capital, triggering a 4.5% jump in its stock price.
In the US, the Fed Beige Book supported Ben Bernanke’s view that the economy had lost momentum. During testimony to the US House, Bernanke said that it was certainly possible that more monetary stimulus could be applied to the US Economy. Markets were also boosted by a strong rise in Housing Starts showing that residential construction is now on a clear up-trend. Later today we have a lot data from the US with, in particular, the Weekly Jobless No’s which will watched closely after last week large drop. We also have leading indicators, Existing Home Sales and the Philly Fed Report.
Sept S&P 500
The S&P traded down to my buy level at 1353 with a 1352.5 low and then traded up to my sell level at 1362 ahead of Bernanke. I also said yesterday that a break of 1363 will lead to a test of 1375, which is the high from 2 weeks ago, and so far it has reached a high of 1372. I have gone flat here as we have now had a 40 handle rally since the low of Wednesday and we are approaching overbought levels. I will look to buy on any dip to the 1362/1365 with a 1359 stop or I will try a small short from 1376/1380 with a 1383 stop.
EURO
The Euro worked great yesterday as we traded down to my 1.2250 buy level with a 1.2220 low and this morning we are back over the 1.2300 level. I have taken profit and gone flat here. I will still look to go long from 1.2240/1.2260 with a 1.2215 stop. If I am taken long I will look to take profit again from 1.2300/1.2320. I will also look to sell on any up move to the very important resistance level of 1.2400/1.2430 with a 1.2420 stop.
Sept FTSE
The FTSE broke my buy level at 5645 yesterday and I have gone long here with a tight 5625 stop which is just below the top of the old trading range and should act as good support. I will look to take profit on any move back to the 5700 level.
USD/JPY
It was a good decision to take profit yesterday on my long position, at 79.20, as we are back down to my buy level this morning. I have gone long again at 78.70 and I will leave my stop at 78.40. I don’t have great confidence in this trade as I am so surprised at how strong the Yen is trading given how strong Equity markets are. I will look to take profit from 79.00/79.20 on this position.
Sept DAX
Very frustrating as the Dax just missed my 6570 level with a 6580 low and we are now trading at 6715. The Dax is very overbought and I will attempt a small short from 6740/6760 with a 6780 stop.
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