The big news overnight was Scotland voting decisively to stay in the United Kingdom. Whilst we are still waiting for the final results it looks like its was a 55%/45% in favour of the ‘NO’ vote. Sterling hit a 2 year high versus the Euro at .7800 and also recovered to a 2 week high versus the US Dollar at 1.6500 compared to 1.6240 yesterday morning. Royal Bank of Scotland have just announced that they will keep their headquarters in Scotland following the ‘No Vote’.
Equity markets made solid gains on both sides of the Atlantic yesterday with the Dow and S&P closing at new highs with both finishing up 0.6% and 0.5% respectively. This was despite some mixed US economic data. US Weekly Jobless Claims fell to 280k last week from 316k the previous week. This is really encouraging for the labour market suggesting there will be a solid bounce in Non Farm Payrolls for September after the soft 142k in August.
US housing data was a bit worse than expected as Housing Starts fell 14.4% in August versus -5.2% expected and +22.9% the previous month. Building Permits also fell 5.6% with both declines being blamed on the volatile multi-family components. The Philly Fed was in line with expectations, at 22.5 in September which was down from 28.30 in August.
This morning on the economic front the only data of note due on either side of the Atlantic is the Euro-Zone Current Account at 9.00 am The September contracts for all major equity indices will expire later today.
December S&P 500
Today marks the expiration of the September contract on a day known as quadruple witching which basically means the expiration of all options and futures. These expiration days can be very difficult to trade and over the last two years they have tended to be on the upside and this month has certainly adhered to this theme.
As I have previously mentioned. there is tendency at contract expiration time towards whatever that is low is put on on the Thursday/Friday in the week before expiration has generally been the low of the rest of the month. However last Tuesday the S&P made a new low by 1 handle before mounting a 40 handle rally over the last few days, helped by the FOMC decision on Wednesday and the Scotland Referendum overnight.
The S&P is now trading at the top of the Bollinger Band and Williams Index and although none of my entry points were hit in yesterday’s session I have gone short this morning at 2011 with a wider 2020 stop. If I am stopped out of this position I will use my 5 handle rule to get short again (See Education Section).
It is surprising with the S&P and Dow both closing at new highs yesterday that the McClellan Oscillator closed with a negative reading of -62 thus showing how weak the internals are in this market and another reason why it has been so difficult to trade over the last 6 weeks. Given how overbought the S&P is trading and the fact that the September contracts expire later today I do not want to be long the market at this time.
Euro/USD
My long 1.2870 position opened yesterday morning worked out well as the Euro had a nice rally after the US markets opened which enabled me to cover this position at 1.2920 and I am now flat. It is opening weaker this morning and today, given the l extreme negativity towards the currency (as shown by the single digit Daily Sentiment Index Reading) I will be a small buyer from 1.2845/1.2875 with a 12825 stop which is just below this weeks low. Remember the Euro has very good support at 1.2750/1.2780 which was touched three times in 2013 before leading to a 13 big figure rally.
US Dollar Index
No change as I am still short the Dollar Index at 84.80 with the same 85.20 stop. I am encouraged that the Dollar is still struggling to trade higher since we made our latest high on Wednesday.
December DAX
It is interesting that QE officially started in Europe yesterday and the Dax closes higher by 1.4%. Thankfully I have not been short the Dax since the ECB cut rates on September 4 and with the Dax up over 10% over the last month it makes it very difficult to chase this market higher especially given the weak economic data that continues to emerge. This morning the Dax is very overbought and today I will be a small seller on any further rally to 9910/9940 with a 9970. Given how overbought the Dax is trading my only interest in buying this market is on a dip to 9640/9680 with a 9625 stop.
December FTSE
My long 6725 FTSE position from late Wednesday worked out well, helped of course by the ‘No Vote’ in the Scottish Referendum. The FTSE is opening strongly this morning which has enabled me to cover this position at 6840 and I am now flat. This morning I will again be a buyer on any dip to 6795/6810 with a 6775 stop. As I keep saying the fact that the FTSE has so under-performed the other major indices I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow just missed my 17130 buy level after I posted yesterday morning before having a huge 130 point rally and I am still flat. It closed at yet another record high having finally closed over the 17150 July high on Wednesday. It is overbought this morning and today I will be a small seller on any further rally to 17310/17350 with a 17410 stop as I am looking for this market to put in some sort of top at least over the next few trading sessions.
December BUND
The open Bund trade also worked out well yesterday as the market had a nice rally after I posted which enabled me to cover my long 148.00 position at 148.30 and I am now flat. It is trading lower this morning and today I will again be a buyer on any further dip to 147.45/147.70 with a 147.25 stop. Despite the fact I am very bearish going forward I do not want to be short the market at this time.
Gold Rolling Contract
Gold just missed my 1216 buy level yesterday with a 1216.1 low and I am still flat. Given how oversold it is trading and the fact the Daily Sentiment Index reading for Gold is still in single digits I will leave my buy level the same at 1210/1216 with a 1207 stop. Again as mentioned in yesterday’s commentary if I am taken long and subsequently stopped out I will be a more aggressive buyer from 1185/1200 with a 1175 stop.
Silver Rolling Contract
No change as I am still long at 18.60 with the same 18.25 stop.
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