Sentiment is now at eye-popping levels in a wide-array of markets , indicating that we may be approaching a change of trend. Last week, the Daily Sentiment Independent Index hit 91% bulls in Gold, 90% in Palladium, 94% bullish in Platinum, 90% of traders are bullish the Euro, 90% in the CRB Index, 96% in Crude Oil and only 8% are bullish the US Dollar. When added to the 96% in the S&P on January 22 and the record 97% in the NASDAQ, the financial markets are approaching a culmination point that will lead to a decline in stocks, precious metals, Forex, Commodities and Oil, and a rally in the US Dollar.
To mark my 1500th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day This offer is open to both new and existing members and if anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 62 points yesterday and is now ahead by 535 points for the month of January, having made 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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After comments from US Treasury Secretary Mnuchin on arrival at Davos by extolling the trade virtues of a weaker dollar, the EUR/USD rose further to as high as 1.2537 on Thursday Davos time. ECB President Draghi failed to push back against EUR strength presenting an upbeat view of economic developments. He did though have a very thinly veiled and loud pop at US Treasury Secretary Steve Mnuchin, putting the blame for the latest dollar-related rise in EUR/USD to ‘’someone else’’ communications.
The USD then reversed later Thursday after President Trump’s intervention saying Mnuchin’s remarks were taken out of context and that the dollar was only going to get stronger (as the US economy went from strength to strength).
My take on Trump’s intervention was that they were prompted by realisation that the US administration would otherwise have lost whatever moral authority it still had in demanding market determined exchange rates and railing against ‘’beggar thy neighbour’’ Exchange Rate Policies. Mnuchin’s original comments (and the context in which they were made, straight upon his arrival in Davos and with the dollar already on the skids) deserve some attention, attention the markets subsequently delivered and re-embraced. FX markets tilted back toward a weaker Dollar view, US dollar indices retracing about half of Thursday afternoon’s pop higher as of Friday’s close.
Q4 US GDP data on Friday showed growth of 2.6% (saar) against 3.0% expected. On the surface this was technically a ‘’miss’’, but the quality of the report was high from a growth momentum viewpoint. There were big growth drags from inventories (-0.7% points) and net exports (-1.1% points). Consumption was a strong 3.8% as was business fixed investment +6.8%, with the core PCE deflator 1.9% as expected, but still only 1.5% y/y.
The drop in inventories is explained by a big run down in car inventories as sales soared in the aftermath of the hurricanes, and so dealerships were caught short and not a worry from a demand viewpoint. In fact it was the opposite. The jump in the (previously unreleased) December Trade Deficit was a bit more sinister, insofar as the deterioration in the trade balance since mid-2016 is at last partly reflective of the lagged impact of the 2014-2016 US dollar rally (the currency matters for the trade balance, a point clearly not lost on Mnuchin last week). That was also given further force by the large 1.1% point net export growth drag in Q4 though I would note that, Q4 real exports still grew a solid 6.9%. It was the 13.9% Q4 import surge that did the damage, influenced by past dollar strength and upbeat US domestic demand.
Going along for the ride with the further push lower in the USD, the AUD poked its nose above last September’s 0.8125 high on Friday (to 0.8134) before easing back to 0.8110 at the close. It trades close to that level in early morning. The NZD finished Friday about a cent lower than its pre-CPI levels and also opens close to Friday’s close, currently at around 0.7350.
The other currency that is come in for special notice was the JPY. It was given a further boost late last week after BoJ Governor Kuroda said in Davos that inflation was finally moving towards the 2% target. It subsequently retraced some of that appreciation after a BoJ spokesman was compelled to issue a clarification, saying that Governor Kuroda/the BoJ had not revised (up) the inflation outlook at last week’s BoJ meeting and their new Outlook report. Friday’s Japanese CPI report for December was close to expectations, headline at 1.0% y/y, ex-fresh food CPI at 0.9%, and ex fresh food and energy at 0.3%.
This morning on the Economic Front we have no data of note from either the UK or the Euro-Zone. At 1.30 pm we have US Personal Income/Spending and the PCE Deflator. Finally at 3.30 pm we have the Dallas Fed Manufacturing Activity Index.
March S&P 500
Late on Friday when the S&P was trading at 2855 I emailed my Platinum Members to cancel my S&P sell range and I am still flat. Given the expected increase in volatility which in my opinion will be with us for many months to come I cannot emphasise the importance of my Platinum Service with all my updated emails. The S&P rose by 74 points last week for a gain of 2.5% and by 210 points since the close on December 29th 2017. This is parabolic as retail investors have jumped on board in what I call the panic stage of the rally. Some very significant gains can be made during this panic phase but remember we can crash at any-time without notice as we saw with Bitcoin which fell 50% in just four weeks. Today I will now raise my buy level to 2852/2860 with a 2845 stop. The S&P needs to break and close below 2836 for a short-term sell signal. If this happens I will be back with an update for my Platinum Members. The next resistance level for the S&P is from 2895/2905 and I will be a small seller in this area with a 2912 stop.
EUR/USD
I am still flat the Euro which finally had a small retracement after the massive gains made already this year. Today I will lower my buy level slightly to 1.2280/1.2320 with a 1.2235 stop. I will also lower my sell level to 1.2470/1.2510 with a 1.2545 stop.
March Dollar Index
My latest long 88.75 position worked well with the market trading higher to my 89.00 T/P level on Friday ahead of making an overnight high at 89.17. Given how oversold and unloved the Dollar is trading as shown by my sentiment comment above I will continue to be a buyer of the US Dollar on dips. Today my buy range will be from 88.50/88.85 with a 88.15 stop which is just below last Thursday’s low print.
March DAX
The small sell-off in the Euro since Friday is certainly helping the DAX. Thankfully we have had no sell levels in this market and are still flat. Today I will now raise my buy level to 13170/13240 with a 13120 stop.
March FTSE
I am still flat the FTSE as the market did not challenge my buy range on Friday. I do not want to chase this market higher and will only raise my buy range slightly to 7595/7640 with a 7560 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
After I cancelled my S&P sell range on Friday I raised my Dow sell level to 26580/26650 for my Platinum Members. Just on the closing bell the Dow rallied to my sell range before opening higher last night. I presume most members did not take on the Dow short position over the weekend. Personally I went short in small size at 26600 before adding to this position shortly after the re-open last night at 26680 for an average short position at 26640. I have just cut this position at my revised 26625 T/P level as I want to get all members on the same page and I am now flat The Dow has now rallied 2000 points for an 8% gain in four weeks which is not sustainable. Today I will again look to sell the Dow on any rally higher to 26695/26765 with a 26830 stop. If I am stopped out of my short position I will only look to go short again on any further rally to 26875/26975 with a 27050 stop.
March NASDAQ
No change as I am still a buyer on any dip lower to 6840/6885 with a 6805 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 6695/6735 with a 6660 stop. I still do not want to be short the NASDAQ at this time.
March BUND
My Bund plan worked well with the market trading lower to my 159.75 buy level before rallying to my revised 159.97 T/P level and I am now flat. This morning the Bund is opening lower at 159.60. As mentioned on Friday the Bund has strong support at its 200 Week Moving Average at 158.80 and today I will be a strong buyer on any further dip lower to 158.60/159.05 with a 158.30 stop.
Gold Rolling Contract
The Daily Sentiment Index reading for Gold is 91% as mentioned in my Daily Commentary above. This is the highest level of optimism in nearly six years matching the Feb 2, 2012 DSI. The last time the DSI exceeded 91% bulls was on September 5, 2011 (92%) which was the day of Gold’s all-time closing high at $1899.80. The intraday peak occurred the next trading day at $1921.50 before we started the long-term bear market. As a result of these DSI readings I will now look to sell Gold on any further rally to 1365/1375 with a 1383 stop. I no longer want to be long Gold at this time.
Silver Rolling Contract
I am still flat Silver and today I will lower my buy level slightly to 16.70/17.10 with a 16.40 stop.
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