US stocks closed weaker for a second day running, the S&P down a little over 1%, while the VIX is up to 15 from 11 at the end of last week. Still well below its long run average (nearer 20) but a big percentage move in 48 hours. While part of the blame for weaker stocks can probably be laid at the feet of the break up in US 10 year Treasury yields through their 2015-2017 range highs this week and alongside increasingly shrill (but I would say well argued) commentary about stretched valuations, there are also sector specific things going on. Namely, lower oil now $2 off its recent highs impacting energy stocks, and a particularly big hit to health care stocks where the sector is off about 2%.
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 215 points yesterday and is now ahead by 870 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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Here the story is of Amazon, Berkshire Hathaway and JP Morgan announcing s joint venture aimed at lowering health care costs. Were it to succeed this could, at the macro level, have important implications; as health care accounts for some 20% of the US PCE deflator. If costs come down here, that would further impede progress towards the Fed’s 2% inflation objective (albeit it would presumably also be good for consumption in other sectors). Watch this space.
There has been limited spill over from weaker stocks to other asset classes, with Bond Yields holding their early week rise and the Dollar in broad Index terms fairly flat. The latter disguises the usual overs and unders for specific currencies, overs in this case being the British pound. This was rallying even before Bank of England Governor Mark Carney offered up some fairly hawkish words suggesting that the elimination of spare capacity in the economy meant that there was no longer quite the dilemma of dealing with Brexit-induced higher inflation but slower growth (even though he asserts that business investment has been some 4% lower than it would have been without Brexit uncertainty).
On the ‘’unders’’ the AUD is the ‘’weakest’’ currency of the past 24 hours a term to use advisedly given it is still trading comfortably above 80 cents. Here I would point to that jump in the VIX this week, as well as softer oil and where the Aussie has proved just as sensitive to oil price volatility as the likes of CAD (and bearing in mind LNG prices are directly linked to oil). Latest price action does serve as a reminder that if we do get a much broader and deeper deterioration in risk sentiment in coming weeks or month, the AUD will be close to the front of the currency causality list.
In the meantime FX markets are not particularly convinced by US Treasury Secretary Steve Mnuchin’s latest attempt to persuade markets there is no change to the ‘’strong dollar’’ policy (after last week he extolled the benefits to US trade from a weaker dollar). At a Senate banking hearing he said that his comments on the dollar in Davos were blown out of proportion by media and were in no way intended to talk down dollar, adding that ‘’I strongly support we have a free currency market that we do not intervene in’’. That may be so, but the market still takes the view ‘’that which has been said cannot be unsaid’’.
There has been a bit of economic data to digest. US Consumer Confidence was higher than expected, running near a 17-year high. Annual Euro-area GDP growth of 2.5% y/y was the strongest since the Global Financial Crisis. Economic confidence, a mixture of consumer and business confidence, was slightly weaker than expected, but coming off a 17-year high. German CPI inflation undershot expectations, setting the scene for a possible undershoot of Euro-Zone CPI figures later this morning (against already meagre market expectations of 1.2% down from 1.4% in December). The Euro took a small hit on this from which it later recovered.
Overnight we had the Trump State of the Union speech in which he ‘’proclaimed a new American moment’’ and ‘’extended an open hand to work with Democrats’’. Otherwise there was nothing new or of note in his speech.
This morning on the Economic Front we already had the release of German Retail Sales which came in much weaker than expected at -1.9% versus -0.4%. At 10.00 am we have Euro-Zone Unemployment and CPI and this is followed at 1.15 pm by the US ADP Employment Change. Next we have the Chicago Purchasing Manager Survey and Pending Home Sales at 2.45 pm and 3.00 pm respectively. Finally we have the FOMC Rate decision at 7.00 pm which is the last Meeting for Fed Chair Janet Yellen. As I go to press there is no press conference scheduled.
March S&P 500
My S&P plan worked well yesterday but you had to be quick given the increased volatility. Initially the S&P traded the whole of my 2829/2835 buy level for an average long position at 2832 before spiking higher to my revised T/P level at 2839 and I am now flat. Yesterday’s price action was wild with so many up and down moves throughout the trading day. The McClellan Oscillator has weakened significantly over the past two sessions closing last night with a negative 199 print. Remember if the MO weakens beyond -250, I will then be looking to buy the US Stock Market and we have to keep an eye on this indicator especially if the S&P trades lower today. The S&P has good support from 2798/2808 and I will be a buyer in this area with a 2793 stop. Despite the S&P closing below 2836 last night I am reluctant to go short the market ahead of the FOMC Rate decision at 7.00 pm. 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 2777/2785 with a 2771 stop.
EUR/USD
Unfortunately the Euro just missed my 1.2470 sell level overnight and I am still flat. Today I will raise my sell level slightly to 1.2490/1.2540 with a 1.2570 stop. I will also raise my buy level slightly to 1.2280/1.2320 with a 1.2250 stop.
March Dollar Index
Shortly after I posted the Dollar traded lower to my 89.00 buy level before trading sideways for most of the day. As I wanted to be flat overnight ahead of Trump’s State of the Union speech I emailed my Platinum Members to exit any long position at 89.10 and I am now flat. This morning the Dollar is opening weaker and today I will again look to buy the market on any dip lower to 88.10/88.55 with a 87.75 tight stop.
March DAX
No change as I am still a buyer on any dip lower to 13070/13135 with the same 13030 stop.
March FTSE
The FTSE traded lower to my 7520 buy level before having a small rally overnight. As I wanted to be flat I emailed my Platinum Members to exit any long position at 7533 and I am still flat. Given the fact that it is month end I have no interest in being short the equity markets today. The FTSE has good support from 7445/7485 and today I will be a buyer in this area with a 7415 stop.
Dow Rolling Contract
My Dow plan worked really well with the market trading lower to my 26110 buy level before rallying a few minutes later to my 26185 T/P level and I am now flat. Yesterday was the wildest Dow two-way trading session that we have seen in many months. With the McClellan Oscillator closing so weak I am now on alert for a tradeable bottom in the Dow which may seem insane considering that we only fell 680 points from Monday morning’s 26703 high print. The Dow has good support from 25950/26030 and today I will be a buyer in this area with a 25890 stop. I still do not want to be short the Dow at this time.
March NASDAQ
The NASDAQ came close to my buy level before rallying and I am still flat. Today I will raise my buy level slightly to 6855/6895 with a 6825 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 6695/6735 with a 6660 stop.
March BUND
The Bund finally traded higher to my revised 159.12 T/P level. Subsequently I emailed my Platinum Members to re-buy the Bund on any dip lower to 158.80 with a 159.00 T/P levels and both trades were filled and I am now flat. The Bund continues to hold its 200 Week Moving Average at 158.70 which is bullish. Today I will again look to buy the Bund on any dip lower to 158.45/158.75 with a 158.15 stop.
Gold Rolling Contract
I am still flat and today I will raise my sell level slightly to 1363/1373 with a 1378 stop. Given the extended DSI readings I still do not want to be long Gold at this time.
Silver Rolling Contract
Shortly after I posted Silver rallied to my 17.20 T/P level on my latest long 17.10 position and I am now flat. I am concerned about the price action in Silver and is why my only interest in buying the market today is on a dip lower to 16.55/16.90 with a 16.25 stop. If I am taken long I will have a T/P level at 17.10.
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