Global Markets have been rocked by the news of the suspension of share trading in Portugal’s Banco Espirito Santo (BES). The suspension follows a missed debt payment which has raised fears of a broader contagion across Portuguese financials. It also follows Wednesday’s Moody’s downgrade of Espirito Santo Financials Group (ESFG) stating concerns regarding their creditworthiness are heightened by the lack of transparency around ESFG’s financial position.
Markets were left torn between viewing this news as BES specific or something more systemic. At one point yesterday the S&P was off more than 1% and 10 Year US Bond Yields were back below 2.5% but both markets recovered late in the day with the S&P closing down 0.4% which suggests a more idiosyncratic interpretation for now of the BES news. Supportive of this view, the FT’s Chris Adams has tweeted that a banker who has worked closely with BES says the Bank had a €2.3 billion capital shortfall and that the most likely solution is a state-brokered rescue deal. Despite the jitters about Euro-zone banks Greece has managed to get away its €1.5 billion 3-Year Bond offering at a yield of 3.5%.
It is nevertheless doubtful we will witness a swift reversal of the recent drop in the VIX (measure of volatility/fear) which closed up a point at 12.6. In addition, the US markets were helped by the Weekly Jobless Claims number which fell to 304k versus 315k last week.
This morning on the economic front we have German CPI. This is followed by the announcement of the ECB 3-Year LTRO Repayment. We have no US data of note but the Fed’s, Lockhart and Evans will both speak on the economy at 7.45 pm this evening.
September S&P 500
The S&P had its first 1% movement in nearly 3 months yesterday after the BES news broke in Europe. Next Friday is a nominal expiration for Options and traditionally whatever low is put in the market on the Thursday/Friday (previous week) before this expiration is generally the low and yesterday’s low at 1945.50 may also prove to be the case. The 1945/1950 is really good support for the S&P and it will take a lot of bad news to break this level despite how overbought the market is trading.
The S&P plan worked well as by the time I posted the market was trading at my 1952 buy level and after a bit of sweating on this position it finally started to close some of its ‘Open Gap from Wednesday which enabled me to cover this position at 1958 and I am now flat. It still has a Gap left from Wednesday from 1961/1968 which I would expect to be filled before trading lower. Today I will be a small buyer on any dip to 1951/1955 with a 1944 stop. I will also be a small seller on any rally back to 1966/1971 with a 1974 stop.
Euro/USD
Yesterday’s price action for the Euro was very interesting as despite the aggressive sell-off in European Indices the Euro held in very well. Shortly after I posted it traded down to my 1.3600 buy level. I am still long and I will leave my stop the same at 1.3570 on this position.
US Dollar Index
No change as I am still long at 80.30 with the same 79.70 stop which is just below key support at 79.75. A break and close below 79.70 will be short term bearish.
September DAX
The Dax had a wild trading session yesterday with the market down nearly 400 points at one stage form the highs made last Monday. After I posted the market was trading at my 9700 buy level before unfortunately stopping me out of this position for a small loss at 9670 and I am now flat. Subsequently the Dax made a new low at 9625 before rebounding strongly this morning. I have to respect the fact that it has now closed below the key 9800 support level for three days and today I will be a small seller on any rally to 9735/9775 with a 9805 stop. Given the volatility I am trading in smaller size with a larger stop. I will also be a buyer on any dip to 9610/9640 with a 9590 stop.
September FTSE
The FTSE also traded down to my 6625 buy level shortly after I posted. I am still long and I will look to cover this position on any rally back to 6650. I will raise my stop on this position to 6610. I will also be a small seller on any further rally to 6660/6680 with a 6695 stop.
Dow Rolling Contract
The Dow also had a volatile trading session yesterday with the market trading in a 200 point range. Today my only interest in selling the market is on a rally to 16980/17010 with a 17040 stop which is just above the Open Gap left from July 7.
September BUND
The Bund made a new high at 148.05 before selling returned to the market. Today I will be a small buyer on any further dip to 147.10/147.35 with a 146.95 stop. My only interest in selling the market is on a rally to 148.50 with a 148.80 stop.
Gold Rolling Contract
Yesterday’s price action in both Gold and Silver was a taster of how strong these markets will be when we finally start to see a decent correction in the Equity markets. I am still flat Gold and today I will raise my buy level to 1320/13280 with a 1309 stop.
Silver Rolling Contract
No change as I am still long from yesterday morning at 21.15. I will raise my stop to 20.90 on this position and if I am stopped out I will be a more aggressive buyer in front of 20.75 with a 20.45 stop.
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