In what turned out to be a volatile trading session yet again after the US equity markets sold off they were quickly snapped up to only close with small losses helped by higher oil prices. This rise in oil assisted an afternoon recovery via the energy sector, after earlier weakness followed disappointing (some say dismal) results for both Macy’s and Kohl’s which dragged the broader retail sector lower. We’ll get US retail sales data at lunch time, where the focus will be whether the ongoing disconnect between what US consumers say (reflected in buoyant consumer confidence readings ) and what they do (weak retail spending) has continued through April, or otherwise.
To mark my 1350th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on email@example.com for details.
For anyone following my Platinum Service it made 83 points yesterday and is now ahead by 541 points for May, having made 1276 points in April, 1335 in March, 1481 in February and 1734 in January. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
In Bonds, US yields are about 2bps lower out to 10-years, notwithstanding incoming economic data showing another very low level of Weekly Jobless benefit claims and Producer Price data that sprung an upside surprise on the headline ‘PPI Final Demand’ reading of 0.5% (0.2% expected) and on the core ex-food and energy measure (0.4% against 0.2% expected). I would note though that on a month-to-month basis there’s only a weak correlation between PPI and what that might mean for today’s all-important CPI data.
In currencies and looking at the last 24 hours, it’s very much a case of where Central Banks have spoken, their currency is weaker. This is of course most evident in the NZD which has barely picked itself up off the floor after the hit from RBNZ-speak this time yesterday. The floor is also the place where a fair few analysts’ jaws dropped after the assertion of the central bank that it sees none of the inflation pressures that many in the market claimed beforehand as evidence in support of at least a nod in the direction of a 2018 tightening bias. In context though, the fall in the NZD only puts it back to where it was a week ago.
Sterling was the other victims of central bank speak, after the Bank of England repeated the 7-1 vote count for unchanged policy against some expectation that more than just the resident (and soon departing) MPC hawk Kristin Forbes might dissent in favour of immediate policy tightening. There were a few hawkish tones in the accompanying BoE narrative from Mr Carney, to the effect that rates could rise sooner than markets expect, but that this would be very dependent on both a smooth glide path into Brexit and a significant pick up in wages growth – two assumptions that look particularly heroic at this juncture. To be fair, though Sterling dipped on news of the 7-1 vote, the majority of yesterday’s drop in came after much weaker than expected data on Industrial Production (manufacturing output -0.6%) and construction output (- 0.7%). The AUD has ground out a small recovery overnight to sit at 0.7380 currently. Why? With the exception of iron ore (little changed) the metal complex is higher (both industrial and precious metals) along with oil.
This morning on the Economic front we already had the release of German GDP for Q1 which came in at +0.6 as expected while Final CPI came in also as expected at +0.00%. At 10.00 am we have Euro-Zone Industrial Production and this is followed at 1.30 pm by US CPI and Retail Sales. CPI will be especially interesting, after the unexpected weakness in March that saw negative prints for both headline and core measures, the annual core rate of inflation dropping from 2.2% to 2.0%. We’ve also seen the Fed’s preferred core PCE deflator measure drop from 1.8% to 1.6% in March and average hourly earnings growth back to 2.5% from 2.9% at the end of 2016. Another significant downside CPI surprise today is one of the few economic releases with the potential to challenge current high expectations for the Fed lifting rates next month. The consensus expectation is for an unchanged 2.0% core rate. Finally at 3.00 pm we have University of Michigan Consumer Sentiment and Business Inventories.
Meanwhile at a Forex Conference in Dublin, the Chicago Fed President Charles Evans is speaking at 2.00 pm.
June S&P 500
The longer that the Dow cannot break the March 1 highs at 21169 the negative divergence that exits between the S&P and the Dow will increase. I am getting more and more concerned for the US stock market especially with margin debt double what it was before the start of the Global Financial Crisis in 2007. As I pointed out to my Platinum Members yesterday, the level of complacency is staggering. In the last 6900 trading sessions the VIX has only closed below 10 on eleven occasions with two of these happening this week. Each time the VIX has broken this milestone the stock market has got hit hard over the coming days/weeks. This does not mean that I am going short the market as yet, for I really want to see a sell extreme that lasts for more than a few days and at the same time breaks and closes below some key support levels. As I have mentioned last week after just three rate hikes by the Fed we are already seeing Money Supply contracting and if the Fed continue to raise rates a couple of more times this year then the Money Supply will contract further putting more pressure on the consumer and the Housing Market. Yesterday after the S&P hit my 2388 buy level I used the subsequent rally to 2393 to cut this position at 2391 and I am now flat. Thankfully for whatever level you bought the S&P you should have made some nice points as my 2378 stop was never hit before the market recovered nicely. Today I will again look to buy the S&P on any dip lower to 2374/2380 with a 2369 stop. If I am taken long and subsequently stopped out of this position or if I manage to T/P on any long position form my buy range, either way I will be a very aggressive buyer from 2347/2353 with a 2342 stop. In my opinion it is only a matter of time before this massive 2345/2366 ‘’Open Gap’’ from three weeks ago is filled.
My Euro plan worked well with the market trading lower to my 1.0840 buy level before bouncing 40 points. As this week has been slow I wanted to bank some points for yesterday and I covered this long position at my revised 1.0855 T/P level and I am now flat. There is no doubt that the IMM data really changed my short-term view of the Euro and it will interesting to see what this evening’s data looks like when released after the US markets close. Today I will again look to buy the Euro on any dip lower to 1.0790/1.0830 with a 1.0760 stop. Despite me concerns for a weaker Euro I still do not want to be short the market at this time.
June Dollar Index
I am still flat the Dollar which just missed my 99.25 buy level with a 99.31 low print before rallying. I am going to leave my buy level unchanged today at 98.85/99.25 as I do not want to chase the market higher at this time.
Unfortunately the DAX missed my 12650 buy level by just 10 points before rallying 90 points and I am still flat. Today I will raise my buy level slightly to 12615/12665 with a 12565 tight stop. My only interest in selling the DAX is still on a rally higher to 12820/12870 with the same 12910 stop. Remember the all-time high is at 12835 and should act as good resistance on the first test.
The FTSE bulls are doing a great job this week with the market reaching a seven week high at 7368. However with the market overbought I will continue to look to go short on any further rally to 7405/7435 with a 7460 tight stop which is just above the March all-time high. I am not going to chase this market higher and I will leave my buy level unchanged at 7275/7305 with the same 7240 stop. There is no doubt the renewed weakness in Sterling is helping the FTSE but looking at the chart Cable has very strong support from 1.2800/1.2850 and to me it is only a matter of time before we break 1.30.
Dow Rolling Contract
One of the main reasons that I cut my S&P position was the fact that I had a lower buy level in the Dow. Yesterday’s initial sell-off saw the Dow trade the whole of my buy range in literally one red candle to a 20795 low print which thankfully missed my 12770 stop before rallying strongly off that low on higher oil. After I bought the Dow at 20845 and 20810 I unfortunately covered this long position at 20830 and I am now flat. It is a long time since I am so concerned about this market especially with the McClellan Oscillator closing weak with a -47 print. On top of that we got a Hindenburg Omen last week and we have only had one crash in the last 30 years without a confirmed HO. You can see why I am nervous and I know that the Central Banks are controlling everything. Apparently the Swiss National Bank bought a huge amount of US equities in the First Quarter. Remember as I mentioned last year they are the largest shareholder in Facebook. The Dow has strong support from 20740/20800 and today I will be a small buyer in this area with a 20690 stop. Despite my concerns I still do not want to go short the market at this time.
In another trading session of small margins the Bund just missed my 159.95 buy level with a 160.00 low print before rallying strongly and I am still flat. Today I will move my buy level slightly higher to 159.70/160.10 with a 159.30 wider stop which is just below the 3.5 month trend line at 159.40.
Gold Rolling Contract
Both Gold and Silver are trying to rally off key support levels in an oversold market. I am still flat Gold and today I will raise my buy level slightly to 1212/1218 with a 1206 stop which is just below both the 500 Day and 100 Week Moving Average.
Silver Rolling Contract
After a difficult two weeks for me and Silver yesterday finally brought some daylight with Silver trading higher to my 16.40 T/P level on my large average buy level at 16.25. Subsequently I emailed my Platinum Members to re-buy Silver at 16.25 and with the subsequent overnight rise I emailed them this morning to cover this position at 16.45 and I am now flat. Silver has massive support from 15.80/16.00 which is last December’s low. A break and close below 15.70 will be very bearish. Given the significance of this support level I will again look to buy Silver from 16.10/16.40 with a 15.70 stop buy only in normal size.