This time yesterday US equity markets were soaring while the US bond market and the Dollar were sliding supposedly on the prospect of the Fed being lower for longer due to the potential drag on growth in large parts of the global economy. This morning equity markets are swooning on the same fears/realisation of slower global growth and the US Dollar is capturing a safe haven bid alongside the Swiss Franc and Japanese Yen. There is really is no accounting for taste in financial markets while a sharp rise in the VIX by nearly 25% to 19.00 is adding to the confusion.
More evidence of the contrast between the continuing good fortunes of the US economy and parlous state of the Euro-Zone economy were evident in yesterday’s only significant releases. German exports slumped 5.8% in seasonally adjusted terms in August with the impact of Russian sanctions becoming plainly evident. US Weekly Jobless Claims fell to their lowest level since February 2006 offering a strong pointer to further falls in the Unemployment Rate.
The German data got the ball rolling on a reversal of Wednesday’s US Dollar weakness/EUR rally and an admission from German Finance Minister Schaeuble that the economy was slowing. So too did ECB President Dragi repetition of the ‘unanimous commitment’ of the ECB Council to take further unconventional measures-including adjusting the size of the ECB’s balance sheet. Dragi completely ignored the objections being raised this week by Bundesbank President Weidmann to such actions.
This morning on the economic front we have UK Trade Balance at 9.30am This afternoon we have various Fed Members due to speak on the economy-namely Plosser at 2pm, George at 6pm, and finally Lacker at 8pm The only US economic data of note due is the Monthly Budget Statement at 7pm.
December S&P 500
There is a famous saying that a week is a long time in Politics but certainly 24 hours can also be a life time in the stock market as we have seen with the incredible volatility that we have witnessed this week and especially since this time yesterday morning when everything appeared to be rosy after Wednesday’s huge move higher on the back of the Fed Minutes. I cannot remember the last time that the Dow had a 200+ point movement for three consecutive days. The 335 point fall in the Dow was the biggest daily move this year and the scary thing about this Month’s sell-off is the McClellan Oscillator is only printing a negative -130 opening up the possibility that we can still have a mini-crash over the coming days. Remember the S&P was trading at 666 in 2008 so the move up has been incredible over the last six years and that this down move started exactly to the day that the market generated a confirmed Hindenburg Omen on September 19.
Yesterday the S&P plan worked out very well as shortly after I posted the S&P was trading at my 1968 sell level and after a nice sell-off before lunch I was able to cover this position at 1958. Soon after the S&P traded down to my 1954 buy level before spiking higher on the release of the strong Jobless Claims which enabled me luckily to cover this position at 1959 and I am now flat. It is hard to believe that the market fell 54 handles from my 1968 sell level yesterday.
Today as I am very nervous about this market and despite the S&P trading near the bottom of its Bollinger Band I will be a small seller from 1927/1932 with a 1938 stop. My only interest in buying this market is on a dip to the August 7 low at 1889/1894 with a 1883 stop.
Euro/USD
The Euro also reversed hard to the downside after the nice up move on Tuesday and Wednesday. Eventually to Euro traded down to my 1.2690 buy level. As I am only long in small size ad having taken sizeable gains earlier this week I am going to widen my stop to 1.2620 on this long position as I am still looking for the Euro to trade back to the 1.2850/1.290 resistance level before heading lower.
US Dollar Index
The Dollar just missed my 8490 buy level before trading higher and I am still flat. Today I will raise my buy level to 85.00/85.30 with a 84.70 stop.
December DAX
The enormous moves in all stock markets yesterday shows how important it is to have your trade size correct but more importantly you must have a stop in the market. As you can see from my trading especially since the stock market topped on September 19 I have am trading with very tight stops for this reason. Yesterday was another great example of how important it is to have a tight stop especially when you are trading against the trend. After I posted yesterday morning the Dax traded lower to my 9075 buy level before quickly stopping me out of this trade at 9040. After the US markets opened the Dax got hit hard and eventually traded down to my 8905 key March 14 low. I went long here and I have covered this position this morning at 8950 and I am now flat. The fact that the Dax closed well below the 9080 previous support level is a big worry and opens up the possibility of a huge move lower to 8320. Today despite how oversold the Dax is currently trading I will be a small seller from 8990/9020 with a 9060 stop. I do not want to be long the Dax at this time.
December FTSE
The Ftse plan did not work out well yesterday but thankfully I had a tight stop at 6435 after the market dropped to my 6480 buy level and I am now flat. The Ftse traded down to a low of 6320 overnight which is an incredible move for a market that has been trading in a very narrow range all year. The Ftse has big support at 6340 and a break and close below here opens up the possibility of a move lower to 6050. Today given the awful price action I do not want to be long the Ftse at this time. I will be small seller from 6380/6420 with a 6450 stop.
Dow Rolling Contract
My grave concerns for the Dow are certainly coming through but unfortunately the Dow just missed my 17050 sell level by 20 points yesterday morning before falling an incredible 430 points and I am still flat. Remember the Dow was trading at 6400 in 2008 and rallied almost 11,000 points over the last six years. There is enormous potential for a substantial move lower especially with sentiment bullish extremes still at a 27 year high. Today I will lower my sell level to 16720/16760 with a 16810 stop but only in small size given the volatility. I still do not want to be long the Dow at this time.
December Bund
The Bund traded down to my 150.15 buy level. I am still long and I will leave my stop the same at 149.65.
Gold Rolling Contract
No change as I am still long at 1187 with the same 1214 stop. If I am stopped out of this trade I will be a more aggressive buyer from 1198/1205 with a 1189 stop.
Silver Rolling Contract
No change as I am still long at 16.95 with the same 16.45 stop.
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