A combination of the Fed buying Corporate Bonds and a Retail Sales Report showing a hard -to – believe Monthly gain for May at 17.7% saw US Indices soar. This move higher saw the S&P fill some of last week’s 3190/3119 ‘’Open Gap’’ as mentioned at length in yesterday’s commentary. The rebound in Retail Sales was broad based with all 13 categories posting an increase. Today is the third consecutive higher close for the S&P as markets ignore the increase in Coronavirus cases in a number of US States and China, which reported 80 new cases over four days, most associated with a Beijing food market. China saw thousands of new cases per day when the virus was at its worst in February. However better testing has led to 8000 of the market’s 10,000 employees been tested right away. The S&P closed with energy, health care and materials leading the market higher. In his Testimony to Congress, Fed Chairman Jerome Powell said that the U.S economy may be bottoming out. Gains quickly vanished after Texas reported a surge in hospitalisations, with the S&P hitting an afternoon low at 3077 before reversing quickly. A subsequent announcement that the White House was in discussions on a +$1 trillion stimulus package boosted stocks. There is also talk of an infrastructure package could soon be proposed by the Trump Administration. Both the US Dollar and Treasuries rose along with Oil, while Gold again traded sideways as is has done for the last two months. In other news, German Investor Confidence rebounded to the highest level since 2006, on hopes that Q2 would mark the worst of the Pandemic. Finally. Oil rose 2.83% after the IEA predicted a record rebound next year.
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Equities
The S&P 500 closed 1.90% higher at a price of 3124.
The Dow Jones Industrial Average rose 526 points for a 2% gain to close at 26,289.
The NASDAQ 100 rose 1.75% to close at 9949.
Stoxx Europe 600 Index advanced 3.0%.
The MSCI Asia Pacific Index increased 2.4%.
This morning the Nikkei closed 0.56% lower at 22,455.
Currencies
Here is a summary of the main Changes in F.X. Markets:
The Euro decreased 0.6% to $1.1258.
The Japanese Yen closed unchanged at 107.31 per Dollar.
The British Pound fell 0.3% to 1.2568 per Dollar.
Bonds
The yield on 10-year Treasuries climbed four basis points to 0.75%.
Germany’s 10-year yield gained two points to -0.43%.
Britain’s 10-year yield closed unchanged at 0.208%.
Commodities
West Texas Intermediate crude advanced 2.7% to $38.13 a barrel.
Gold closed 0.1% higher at $1725.
This morning on the Economic Front we already had the release of UK CPI for May which came in as expected at +0.5%. At 10.00 am we have Euro-Zone CPI, Construction Output and a speech from ECB Member Mersch. This is followed at 12.00 pm by a speech from De Guindos and U.S MBA Mortgage Applications. At 1.30 pm we have Housing Starts and Building Permits. Finally, at 3.00 pm Fed Chairman Powell Testifies before Congress for the second day.
June S&P 500
Incredibly nervous markets as shown by last Thursday’s fourth largest point drop in history for the Dow. The sell-off continued on Monday morning after an increase in infections in some of the US States and China saw the Fed scared that we will see another full- blown crash. Immediately they announced that they will buy Corporate Bonds while at the same time it was announced that the Trump Administration will add in a +$1 trillion infrastructure package. I have said countless times over the past few weeks that we are now creating one of the biggest asset bubbles in history and that the Fed are now the biggest Hedge Fund Manager in the world. These are not normal markets. In my opinion there is absolutely no chance of a V-Shaped recovery despite the 17.4% rise in Retail Sales yesterday. At this rate it will not be long before we will see 152% Market Cap to GDP which was achieved last week. This is not sustainable. Yesterday my S&P plan worked well with the market trading the whole of my sell range for a 3155 average short position before selling off to my 3140 T/P level and I am now flat. News that hospitalisations increased in Texas saw the S&P spike to a 3077 low before reversing and trading sideways between 3115/3135 for the rest of the session. There are two ‘’Open Gaps’’ close by. Last Wednesday’s 3190 close and Monday’s 3060. Yesterday’s spike lower has left a large 17 Handle Gap while the 200 Handle fall on Thursday has left a rare Island Reversal. If the S&P does not break and close above 3200 over the coming days then this Island Reversal will signal lower prices. Against this we have the Quadruple Expiration on Friday. There is a fair chance that markets will hold in for the rest of the week before we see more sustained selling next week. Today I will be a seller from 3170/3195 with a 3208 stop. I will now raise my buy level to 3070/3085 with a 3058 stop.
EUR/USD
The sell-off in equities yesterday saw the Euro trade lower to my 1.1260 buy level. I am still long and I will leave my T/P level unchanged at 1.1290. I will add to this trade at 1.1210 with the same 1.1165 stop. The Euro has strong resistance from 1.1400/1.1440 where I will continue to be a seller with the same 1.1475 stop.
September Dollar Index
I am still flat and I will now lower my sell level to 97.30/97.70 with a 98.10 stop.
June DAX
The DAX just missed my 12105 buy level before rallying as expected ahead of the June expiration on Friday and I am still flat. This morning we are trading at 12320 and I will now raise my buy level to 12130/12205 with a 12075 stop. I still do not want to be short the DAX at this time.
June FTSE
I am still flat the FTSE and today I will raise my buy level to 6140/6190 with a higher 6085 tight stop. Just like the DAX above I do not want to be short the FTSE ahead of Friday.
Dow Rolling Contract
Incredible two-way volatility in the Dow yesterday with both my sell level and buy level getting triggered. Initially the Dow surged to my 26575 average sell level before selling off to my revised 26460 T/P level. Subsequently after the U.S Markets opened the Dow got slammed, hitting my 25850 buy level before again rallying to my 26040 T/P level and I am now flat. Internally, the market was strong yesterday with the McClellan Oscillator closing at +100. The Dow has strong support from 25700/25950 where I will be a buyer with a 25540 stop. The Dow has initial resistance from 26650/26850 where I will be a small seller with a 27010 stop.
June NASDAQ
My NASDAQ plan worked well with the market trading higher to my 10000 sell level before selling off to my revised 9940 T/P level and I am still flat. The NASDAQ has strong resistance from 10070/10200 where I will be a seller with a 10275 stop. I still do not want to be long the NASDAQ at this time.
September BUND
The sell-off in equity markets saw the Bund trade higher to my 175.45 T/P level on yesterday morning’s 175.15 long position and I am now flat. This morning the Bund is opening lower at 175.00. We have support from 174.25/174.65 where I will be a buyer with a 173.85 stop.
Gold Rolling Contract
I am still flat Gold and I will now raise my buy level to 1688/1698 with a 1679 stop.
Silver Rolling Contract
No Change as I am still a buyer from 16.50/16.90 with a 16.15 stop. If I am taken long I will have a T/P level at 17.15.
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