Yesterday we had some good data, some bad data, some encouraging news and some uncomfortable news but at the end of the day markets reverted to the default position of risk off! Equities ended the day lower by around 1% across the US and Europe whilst US 10 Year Bond Yields fell again to 2.49% with the Japanese Yen been the strongest of the G10 Currencies.
We shall start at the beginning as Germany was the first in Europe to report Q1 GDP outcomes and it was a little higher which led to a spike in the DAX and later reversal which led to another Key Day Reversal to the downside. This was followed by a spate of underwhelming GDP results, thus culminating in a very disappointing EU Q1 GDP outcome of just 0.2% versus 0.4% expected. There was some chatter from ECB sources about further easing but that is built into the market pricing at this stage. However concerns about Greece’s upcoming election and old news about a tax on capital gains led to a ramping up of periphery yields and risk aversion.
We then moved to the US. This started very well with an extremely strong Empire Survey of Manufacturers. US CPI was higher than expected which should be bad for Bond markets but 45 minutes later a very poor Industrial Production outcome over-rode the Philly Fed Survey and, to top it off, the NAHB Housing Survey was again poor. Markets tend to focus on the negative at the moment which is likely due to positioning and this is what dominated over some relatively good news.
This morning we have no economic data of note from the UK or the Euro-Zone whilst at 1.30 pm we have US Housing Starts and Building Permits. This is followed at 2.55 pm by the University of Michigan Survey.
June S&P 500
Yesterday was another very important lesson in how critical it is to have stops in the market as the rally that I was looking for in anticipation of Options Expiration today fell apart especially after the release of the extremely weak Industrial Production. After the US markets opened the S&P traded lower to my 1882 buy level which looked good for a while after the Empire Manufacturing Survey was released but I was quickly stopped out of this position at 1874 and I am now flat. I did not do another S&P trade as I just watched the market which again found support at the 1860 level near the same low made last week. The big worry for the market going forward is that internally stocks are very weak and volume has been very low on the up-days.
I have to respect that the S&P closed below support at 1870 while again bouncing off the 1860 level. The key level on the downside to watch is from 1835/1850 and a break and close below here will be very bearish. Given the recent volatility in markets I am trading in smaller size with a wider stop. Today I will be a small seller on any rally to 1872/1877 with a 1881 stop. I will also be a small buyer on any dip to 1856/1861 with a 1853 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1840 with a 1833 stop.
Euro/USD
Just as I posted yesterday morning the Euro was trading at the bottom range of my buy level at 1.3675. As I mentioned above, the expected cut in rates by the ECB is now built into the price and so this fact, coupled with the Euro trading at the bottom of its Bollinger Band and Williams Index, makes it very difficult for the Euro to trade much lower from here. Indeed we did have a nice bounce and I have covered my long position at 1.3720 and I am now flat. I still like the Euro and today I will again be a small buyer from 1.3670/1.3700 with a 1.3640 stop which is just below yesterday’s low.
US Dollar Index
Due to my concerns about the Euro, I decided to cover the rest of my long 79.20 position at 80.10 and I am now flat. The Dollar is overbought and trading at the top of its Bollinger Band and today my only interest in buying the Index is on a drop to 79.50/79.80 with a 79.25 stop.
June DAX
In contrast to the S&P, the Dax plan worked well yesterday as the market traded higher to my 9820 sell level before having a nice sell-off which enabled me to cover this position at 9740. The Dax continued to fall after the US markets opened and traded down to my 9650 buy level before having a nice rally which enabled me to cover this position at 9690 and I am now flat. Worryingly for the bulls the market had a significant Key Day Reversal to the downside yesterday. Today I will be a small seller on any rally to 9730/9770 with a 9795 stop. I will also be a small buyer on any dip to 9570/9610 with a 9545 stop.
June FTSE
The FTSE held up the best of the major Indices yesterday. Late in the afternoon it traded lower to my 6820 buy level. I am still long and I will not risk to much on this trade by leaving my stop the same at 6795. The 6830/6850 level is still key for the FTSE as a sell extreme from here will be bearish going forward.
Dow Rolling Contract
Just like the S&P, yesterday showed how important it is to have stops in the market. My long 16610 position looked good for a while but once the Industrial Production data was released I was quickly stopped out of this position at 16560 and I am now flat. After I was stopped out the Dow fell another 150 points before finally finding some support at 16390. The key level is still at 16250 and a break and close below here will be very bearish. Today I will be a small buyer on any dip to 16330/16380 with a 16310 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 16250 with a 16210 stop.
June BUND
The Bund is now up an incredible 700 points in the last month as investors just chase any available yield without looking at the downside risks. It is extremely overbought and yesterday was a bad day for me in the Bund. After I posted,I was quickly stopped out of my short 145.70 position at 146.05 before going short again at 146.40 only to be stopped out of this position at 146.70. This morning, given how overbought the market is trading, I have decided to go short again at 146.68. I will not risk to much on this trade by leaving a 147.05 stop on this position.
Gold Rolling Contract
The Gold plan worked well yesterday as shortly after I posted it traded down to my 1291 buy level before having a nice rally which enabled me to cover this position at 1301 and I am now flat. Gold is opening lower this morning and today I will again be a small buyer on any further dip to 1278/1285 with a 1273 stop. It needs to break and close over 1310 for the market to turn bullish.
Silver Rolling Contract
Silver also traded lower after I posted and I am now long at 19.40 with the same 1890 stop. It really needs to break 20.50 for this market to turn bullish.
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