Equity markets closed virtually flat on both sides of the Atlantic after having a reasonably volatile trading session. The US markets, having been down over 1/2% at one point, again staged a late day rally to close in positive territory. However there was another large fall in Oil prices. Brent Oil fell 3.1% to $77.92 and WTI closed down 3.8% to $74..25, on further reports that there is unlikely to be a reduction of output at the November 27 OPEC meeting whilst the Saudi Arabian Oil Minister has dismissed talk of an OPEC price war. WTI is down a further 1% this morning to its lowest level since September 2010. Prices have now fallen for seven straight weeks which is a slump unmatched since March 1986.
On currency markets the Dollar has largely traded sideways whilst Sterling has again been the weakest performer. Bank of England Deputy Governor Broadbent said that disinflationary trends ‘will remain in place for a while’. In addition, the UK RICS House Price Index fell to 20 in October versus 25 expected and 30 last month to its lowest level since mid-2013. In the US, Jobless Claims were also a bit worse than expected rising 12K to 290K whilst the German CPI was confirmed at -0.3% in October and +0.8% yoy.
European Equity markets are opening higher this morning after Germany and France reported stronger GDP than expected. German GDP rose 0.1% in the three months through September after shrinking a revised 0.1% in the second Quarter.
This morning on the economic front we have Euro-Zone GDP at 10.00 am. This is followed at 1.30 pm by US Retail Sales. Finally at 2.55 pm we have the University of Michigan Consumer Confidence Index.
December S&P 500
The S&P plan worked out well yesterday as shortly after the US markets opened the market traded higher to my 2042 sell level with a 2044 high before have a nice sell-off which enabled me to cover this position at 2034 and I am now flat. Interestingly with the Dow and S&P both closing in positive territory the McClellan Oscillator had a huge fall, closing at +55 from +124 the previous day. Internally this market is getting weaker which is a bearish sign going forward. None of the stock markets that I follow, with the exception of the Nikkei, have followed the US markets to new highs so far in 2014. All of these markets remain substantially below theit summer highs which is certainly a bearish divergence for the US markets going forward.
I will continue with the plan of selling spikes with a tight stop until we get the sell extreme that this market is due, at which point, I will look to put on a more macro short position. Today I will again be a small seller from 2038/2043 with a 2046 stop. Again if I am taken short and subsequently stopped out I will use my 5 handle rule to go short again with a stop above whatever new high is put in. My only interest in buying the S&P is on a dip to 2020/2025 with a 2015 stop.
Euro/USD
The Euro plan also worked well yesterday as after I posted it had a nice rally which enabled me to cover my 1.2440 long position at 1.2480 and I am now flat. Sentiment remains in the extreme against the Euro and in my view it is only a matter of time before it breaks out to the upside. The key to this view is holding the 1.2350 major support. Today I will again be a small buyer on any dip to 1.2390/1.2430 with a wider 1.2335 stop. I still do not want to be short the Euro at this time.
US Dollar Index
No change as I am still short at 87.90 with the same 88.45 stop.
December DAX
The idea of selling rallies in the Dax continues to work well. After I posted yesterday morning the Dax was trading at my 9280 sell level and after a nice sell-off on Ukraine tensions I was able to cover this position at 9220 and I am now flat. The Dax is opening higher this morning on the better German GDP release and today I will again be a small seller from 9300/9330 with a 9360 stop. As I have mentioned over the last two weeks it is too dangerous to be long the Dax at this time as it is still trading nearly 8% below its 2014 highs despite the US markets making new highs almost every other day.
December FTSE
No change as I am still short from yesterday at 6620 with the same 6655 tight stop.
Dow Rolling Contract
The Dow also had a nice fall yesterday after the US markets opened which enabled me to cover my 16680 short position at 16620 and I am now flat. The Dow continues to defy logic with its refusal to trade lower but given how weak internally this market is becoming. It is only a matter of time before it starts to rollover to the downside. I will continue with my strategy of selling spikes with a tight stop until we get a sell extreme. Today I will again be a small seller from 16680/17730 with a 17760 stop.
December Bund
The Bund has traded up to my 151.78 sell level this morning. I am still short and I will leave my stop the same at 152.25.
Gold Rolling Contract
Yesterday Gold looked like it was going to break out to the upside but unfortunately it is back on the defensive this morning. I am still long at 1257 and I will leave my stop the same at 1243.
Silver Rolling Contract
Just like Gold, Silver is also on the defensive this morning. I am still long at 15.30 and 15.80 and I will leave my stop the same at 15.25. If I am stopped out of these positions I will be a more aggressive buyer from 14.70/15.00 with a 14.35 stop.
Nymex Crude December
In my market commentary I have not mentioned WTI since last May when it made its major top at 107. At that time Crude was trading outside its Bollinger Band and at the top of its Williams Index. The reason I am buying WTI this morning is the market is extremely oversold as mentioned above. Crude is trading outside the bottom of its Bollinger Band and at the bottom of its Williams Index. I have gone long this morning at 73.52 with a 71.95 stop. I have to use a wider stop given the volatility but Crude is due at decent bounce after its seven week slump.
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