Equity markets staged a huge relief rally yesterday as John Boehner, the Republican leader in the House, offered an olive branch to President Obama. Boehner offered to extend the debt ceiling for six weeks to November 22 although the proposal would not reopen the Government offices closed since October 1. A White House spokesman signaled that the President was open to the short term increase. The Dow and S&P 500 both closed up 2.2% on the news and the yield on the October 17 T-Bill tumbled to a low of 0.215% off a high of 0.505% early Thursday morning.
The effect of the shutdown is starting to show through to the economic data. Initial Jobless Claims for unemployment benefits jumped to 374k last week, up from 308k, and way above forecasts of 311k. The data was distorted by on going processing issues in California which added about 33k of the 66k jump and the labor department said that 15k was attributable to the shutdown leaving 18K unaccounted for. The message is clear the shutdown is starting to hurt the economy.
The Bank of England left rates unchanged. There will interest in the Minutes from their meeting in two weeks time and the MPC’s assessment of some of the slower economic data coming through.
This morning we have no economic data of note from the UK or the Euro-Zone whilst later from the US we have PPI and Retail Sales at 1.30 pm. This is followed at 2.55 pm by the University of Michigan Consumer Confidence Index.
December S&P 500
The S&P gapped higher on the US open yesterday afternoon and this rally was enhanced by the news that the Republicans were extending the debt ceiling by six weeks to November 22. In the process the S&P has regained its 200 Day Moving Average and we now have a Gap left from Wednesday’s close at 1649 to the New York low of 1662 to close at 1684. The market traded up to my 1668 sell level before quickly stopping me out at 1673 and I am now flat. Yesterday was another great example how important it is to have your stop in the market and after I was stopped out at 1673 I did not do another S&P trade and just watched the market. The VIX fell an incredible 15% yesterday. I am impressed that we have broken the 1673 level so easily and today I will be a small buyer on any dip to 1671/1675 with a 1668 stop. I will also be a small seller on any rally to 1694/1699 with a 1702 stop.
Euro/USD
The Euro, having been weak all day, finally rallied on the Debt extension news. Although I have not been stopped out of my 1.3600 short position at 1.3550 for a take profit I have decided to cover my position here at 1.3540 and stand aside. The Euro has had a nice rally off the 1.3480 support and we need a break and close below 1.3480 for me to get bearish. Today I will still be a seller on any rally to 1.3590/1.3620 with a 1.3640 stop. I will also be a small buyer on any dip to 1.3480/1.3500 with a 1.3465 stop.
December DAX
The Dax having just missed my 8570 buy level did indeed break the 8610 resistance level that I mentioned yesterday and then spent the rest of the day trading higher. The market traded up to near 8750 before consolidating. Today I will be a buyer on any dip to 8630/8660 with a 8605 stop. I will also be a small seller on any rally to 8780/8805 with a 8820 stop.
December FTSE
I am glad that I kept half my 6295 long position from Wednesday and after a huge rally I was able to cover this position at 6420 and I am now flat. The FTSE has had a really nice rally off the 6300/6325 support zone and today I will be a small buyer on any dip to 6360/6390 with a 6345 stop. I do not want to be short the FTSE at this time.
Dow Rolling Contract
What I can I say about yesterday when we had one of the largest rallies in the Dow with a 323 point gain as every short position got burned. I am frustrated that I did not keep half my position from Wednesday when I bought the market at 10750 but at least I had no short sell levels in the market yesterday. Today I will be a small seller on any further rally to 15150/15180 with a 15205 stop. I will also be a small buyer on any dip to 15000/15025 with a tight 14970 stop.
December BUND
The Bund plan worked well yesterday as the market traded down to my 139.55 buy level before have a nice rally and I was able to cover this position on the open this morning at 139.84 and I am now flat. Today I will still be a buyer on any dip to 139.35/139.55 with a 139.20 stop.
Gold Rolling Contract
Stop are so important in trading especially in the case of the S&P yesterday but occasionally they can be a little frustrating as with my Gold trade. Having bought the market at 1290 I was stopped out at 1283 which was the low of the day before the market traded higher and I am still flat. Gold is trying desperately to hold this 1280/1295 support zone as a break and close below here opens the possibility that we could trade back to the 1180 lows made in June. Today I will be a small buyer from 1278/1285 with a 1275 stop.
Silver Rolling Contract
Silver worked well as shortly after I posted yesterday it spiked higher and I was able to cover my 21.80 long position from Wednesday at 22.15 and I am now flat. I still like Silver and today I will be a small buyer on any dip to 21.10/21.40 with a 20.85 stop.
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