Stock markets have continued from where they left off on Wednesday, still digesting Ben Bernanke’s strong message that he expected that ‘highly accommodative monetary policy’ would be needed for the foreseeable future. This should not have been news to the market since it is completely consistent with Fed statements in the past. Nonetheless the message seems to have got through that a start to easing on the rate of asset purchases does not mean that a tightening in monetary policy is in the wings. My own belief is that US Interest rates will hold until at least December 2015.
The Dow and S&P closed yesterday on new all time highs whilst the Nasdaq closed at it’s highest level in 13 years. The US Dollar Index has lost over 1.6%, since Bernanke’s speech, with Sterling, Yen and the Euro all making good gains against the US Dollar. However we need to keep an eye on Europe where there are renewed concerns about Sovereign Debt. Italy held a Bond Auction yesterday which did not go well, whilst concerns are also mounting about Portugal, Spain and Greece.
This morning on the economic front we have UK Construction Output and Euro-Zone Industrial Production whilst later in the US at 1.30pm we have PPI followed by University of Michigan Confidence Index at 3pm. Later this afternoon the Fed’s Plosser and Bullard are speaking about the economy in Jackson Hole.
September S&P 500
The S&P had another large up gap yesterday between Wednesday’s close at 1648.50 and the the low of 1660 in the New York session. If this gap cannot be filled today then we will have a break-away gap situation which can have very bullish consequences and the market will probably shoot for the 1740 target that I mentioned earlier in the week. The S&P also managed to close over this 1660 resistance zone and the fact that the market closed a new all time high is also very bullish. One concern is the McClellan Oscillator which closed at+217 which is the highest positive reading this year and if we get to positive 300 then I will look to start shorting rallies.
Yesterday the S&P hit my 1667 sell level and I was able to cover this position for a small profit at 1662 and I am now flat. Today I will be a buyer on any dip to 1660/1665 with a 1657 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1650 with a 1646 stop. I do not want to be short at this time unless we trade up to 1695/1700 where I will go short with a 1705 stop.
Euro/USD
The Euro plan worked well yesterday as the market dropped down to my 1.3020 buy level before having a nice rally into the New York close. I was able to cover my long position at 1.3075 and I am now flat. I am impressed that the Euro was able to close over 1.3080 and today I will look to reset my long position on any dip to 1.3020/1.3050 with a 1.2995 stop. I do not want to be short at this time.
September DAX
The Dax never hit any of my levels yesterday and this morning has gapped higher following the late S&P rally last night. It still continues to underperform the other major Indices and today I will be a small seller on any rally to 8250/8270 with a 8305 stop. My only interest in buying the Dax is at the 8060/8090 level with a 8035 stop.
September FTSE
The FTSE worked well yesterday as the market traded up to my 6530 sell level before having a nice sell off. I was able to cover this short position at 6490 and I am now flat. The FTSE still continues to trade at the top of the Bollinger Band but the Williams Index is still on a sell signal. Today I will be a small seller on any rally to 6540/6560 with a 6610 stop. I have to use wider stops given the volatility. I still do not want to be long the FTSE at this time given how over extended the market is trading.
Gold Rolling Contract
Today I will lower my sell level to 1285/1295 with a 1305 stop which is just above yesterday morning’s high. I will also be a small buyer on any dip to 1245/1255 with a 1238 stop.
Silver Rolling Contract
Silver has dropped down to my 19.80 buy level this morning and I have been able to reset half of the position that I sold yesterday at 20.05 to go with my original position at 19.15. I will leave my stop at 19.50 which will at least ensure a breakeven on this trade. If I am stopped out I will be a more aggressive buyer from 19.00/19.30 with a 18.80 stop.
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