Equity markets had their worst trading day since Feb 3rd yesterday, as a result of Chinese growth jitters and renewed Ukrainian-Russian tensions, with markets switching to the risk-adverse mode with Bonds up and Stocks down. Worryingly for the bulls both the Dow and S&P 500 had huge key day reversals with both indices closing down 1.4% and 1.2% respectively. Industrial Production growth in China slowed from 9.7% last year to 8.6% and well below the 9.5% target for this year. There is no doubt that the Chinese economy is slowing and this is a big worry for the West.
European Stock markets, having been up nicely in the morning did a dramatic u-turn in afternoon trading ahead of the secession referendum in the Crimea on Sunday with plenty of tough talking from the West as US Secretary of State Kerry warned there could be very serious steps taken if we have no resolution between Ukraine and Russia. After initially rallying, the Euro also did an about turn back below 1.3880 again, something that the ECB and European Exporters would be none too sad about. Russian stocks took another dive yesterday but interestingly Ukrainian stocks bucked the trend by rising 2.5%.
After the US markets opened, Equity markets rose on better US Economic data with Retail Sales rising 0.3% and the Weekly Jobless Claims falling another 9k to 315k. Despite the weather effected data, the US Economy appears to be doing fine thus I still expect the Fed to do another $10 billion of tapering at their FOMC Meeting next Wednesday. The rise in the Japanese Yen over the last 48 hours has seen a huge fall in the Nikkei with the market closing down over 3% this morning.
This morning on the economic front we have German CPI. This is followed at 12.30 pm by US PPI and the very important University of Michigan Confidence Index at 1.55 pm
March S&P 500
As I mentioned above, the S&P had a classic Key Day Reversal yesterday as the market made a higher high than Wednesday after the Retail Sales and Weekly Jobless Claims were released and then it started to follow the German DAX lower. Once it broke below Wednesday’s low at 1860 the market just accelerated lower. Initially the market stopped falling at 1846 where we had a 7 handle rally before it was hit again into the close. I had no luck yesterday as, having been stopped out of my short 1868 position early yesterday morning near the highs of the day at 1873, the market then dropped down to my 1864 buy level before very quickly stopping me out of this position at 1857 and I am now flat. Despite the fact that I got stopped out of my earlier short position, yesterday was another great example of how important it is to have stops in the market and as I have been saying over the last month only to trade in small size given the increased volatility.
Now the big question is ‘where do we go from here?’ Resistance will now come in at 1857/1860 while the key support is still from 1832/1836 with 1832 the low from 2 weeks ago. If the S&P breaks back above 1860 I will look to reset my long position whilst a break and close below 1832 will be very bearish and I will then look to set up a short position. For the last three years the S&P has bottomed on the Thursday/Friday before triple witching expiration which for March is next Friday so it is something to keep an eye on, plus we have the FOMC Meeting next Wednesday. Today I will again be a small buyer on any dip to 1834/1838 with a 1829 stop. I will also be a small seller on any rally from 1856/1860 with a 1862 stop. Either way I am going to go home flat for the weekend given the vote in Crimea on Sunday.
Euro/USD
As expected, the Daily Sentiment Index at 90% bulls was the first warning sign not to be long the Euro which also had a small Key Day Reversal yesterday. Unfortunately the market just missed my 1.3975 sell level with a 1.3667 high before falling over 100 points and I am still flat. Today I will lower my sell level to 1.3900/1.3930 with a 1.3945 stop. Given how overextended the Euro is trading plus the Key Day Reversal that we had yesterday I do not want to be long the market at this time.
US Dollar Index
Just after I posted yesterday morning I was stopped out of my long 79.80 position at 79.30. The Index made a low of 79.20 before starting to trade higher and I went long again at 79.45. As I mentioned yesterday the real level to watch for in the US Dollar Index is last November’s low, at 78.90, and as long as the Index can stay over this key level the Dollar is still bullish. I will leave a 78.80 stop on my small long position as I want to give this trade some room to breathe.
March DAX
My recent good run in the DAX came to a spectacular end yesterday as the DAX fell an amazing 300 points yesterday afternoon with the market down nearly 10% in the last two weeks.To give an example of how much this market has moved the DAX/FTSE spread has narrowed from over 3000 points to 2400 points in the same period. As I mentioned over the last few days 9150 was key support for the Dax but I must say I did not expect the market to trade down to nearly 8900 after we broke this level yesterday. Yesterday was another great example of how important it is to have stops in the market as after the Dax traded down to my 9170 buy level I was very quickly stopped out of this position at 9125 and I am now flat. It is trading way outside the bottom of the Bollinger Band and at the bottom of the Williams Index and normally I would be a very aggressive buyer here but obviously we have the worries of Sunday’s vote in Crimea to negotiate first. Today I will be a small buyer from 8920/8950 with a tight 8885 stop. My only interest in selling the Dax is on a rally back to 9140/9175 with a 9205 stop. Either way I will be flat and have no position over the weekend as it is too dangerous.
March FTSE
The FTSE is also trading at the bottom of its Bollinger Band and Williams Index but thankfully it is not as volatile as the DAX or Dow. The market traded down to my 6585 buy level before quickly stopping me out of this position at 6665 for a small loss and I am now flat. It has good support at 6500 and today I will be a small buyer from 6490/6510 with a 6475 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
Just like the S&P and the Euro, the Dow also had Key Day Reversal yesterday and in the process took out the key 14 Year trendline at 16250 as sellers returned to the market in an aggressive way. Thankfully I had a very tight stop on my 16280 long position at 16245 and I am now flat. The Dow will now have key resistance at 16230/16270 and my only interest today is to be a seller in this area with a 16305 stop. I will also be a small buyer on any dip to 16040/16080 with a 16020 stop.
June BUND
The Bund continued its recent rally as investors flee into this market for safety. After I posted yesterday it made a low of 142.85 just missing my 142.80 buy level before trading over 100 points higher and I am still flat. Today I will raise my buy level to 143.00/143.25 with a 142.80 stop on any long position.
Gold Rolling Contract
No change as I am still a small seller on any further rally to 1381/1387 with a 1392 stop.
Silver Rolling Contract
No change as I am still a small buyer from 20.70/21.00 with the same 20.50 stop.
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