Equity markets ended the day with another record close in the US as new Fed Chair Janet Yellen signals that she will continue QE undeterred by risk of bubbles. In her testimony to Congress Yellen indicated that she will press on with the Federal Reserve’s unprecedented monetary stimulus, until she sees a robust recovery, downplaying risks the policy is inflating asset bubbles. ‘I don’t see evidence at this point in major sectors of asset price,misalignments’ she said yesterday during her confirmation hearing to be the next Fed Chairman. ‘Although there is limited evidence of reach for yield, we don’t see a broad buildup in leverage where the development of risks that I think at this stage poses a risk to financial stability’. Yellen signaled her determination to use bond buying to strengthen the economy and drive down the Nation,s 7.3% unemployment rate. The Dow and S&P both finished at new record highs ending the day up another 0.35% and 0.5% respectively.
This morning on the economic front we have Euro-Zone GDP and CPI. This is followed later from the US by Empire Manufacturing at 1.30 pm and Industrial Production at 2.15 pm.
December S&P 500
The S&P is now overbought on a Daily,Weekly and Monthly basis as the market targets the 1800/1810 resistance level that I mentioned earlier in the week. Yesterday before new Fed Chair, Yellen took to the floor, the market just missed my 1776 buy level with a 1777.5 low before trading higher and I am still flat. It is very hard to be long the market because we are so overbought and yet it is so hard to be short as you are then ‘fighting the Fed, as long as they continue this aggressive QE. Yellen has now targeted the unemployment rate and so the Monthly Non Farm Payroll Numbers are now going to become even more important going forward. Today I will raise my buy level to 1778/1782 with a 1775 stop which is just below yesterday’s low and my only interest in selling the S&P is on a rally to 1797/1802 with a 1805 stop.
Euro/USD
The Euro worked well yesterday as shortly after I posted the Euro traded down to 1.3419 enabling me to cover my 1.3480 short position at 1.3440 and I am now flat. I still believe the Euro is a ‘sell on rallies’ as ECB President Dragi does not want the Euro trading much higher. Today I will look to sell the Euro on any rally to 1.3475/1.3500 with a 1.3520 stop. My only interest in buying the Euro is on a drop to 1.3310/1.3340 with a 1.3290 stop which is just below last week,s low following the ECB rate cut.
December DAX
No change as I am still a seller on any rally to 9175/9200 with a tight 9225 stop. I will also leave my buy level the same at 9060/9080 with a 9035 stop.
December FTSE
Amazingly the FTSE continues to struggle as so far the market cannot break the key 6700 resistance level. Even yesterday with the Dow and S&P making new highs the market refused to follow suit and this is a worry to me for the markets going forward. As I mentioned yesterday I need to see the FTSE break and close over 6720 for me to turn bullish. Today I will lower my sell level slightly to 6685/6710 with a 6725 stop. I still do not want be long the market at this time.
Dow Rolling Contract
I am glad I stayed away from the Dow yesterday. The Dow is also now overbought on a Daily,Weekly and Monthly basis but just because we are overbought it does not mean that we cannot become even more overbought. The Dow is now up nearly 1200 points off its mid-October low, at 14720, following the Government shut-down.Today I will be a small seller on any rally to 15895/15935 with a 15980 stop. I do not want to be long the Dow at this time.
December BUND
The Bund just missed my 141.20 buy level yesterday and I am still flat. Today I will raise my buy level to 141.10/141.30 with a 140.95 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold had a nice rally yesterday but I am worried about what it will do from here given how weak Silver is this morning. For this reason I have decided to cover the rest of my long 1266 position at 1284 this morning and I am now flat. The key level for Gold is still 1250 and today I will be a small buyer on any dip to 1251/1258 with a 1247 stop. A break and close below 1250 will very bearish and opens up the possibility of a test of the June Lows at 1180.
Silver Rolling Contract
Silver initially had a nice rally yesterday before sellers returned and this morning I have been stopped out for a small profit on my 20.50 long position at 20.60 and I am now flat. Today my only interest in buying Silver is on a dip to 19.95/20.25 with a 19.70 stop.
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