It has been a dreadful 48 hours for investors as the Dow Jones Industrial Average has lost over 550 points in that time, it’s worst two days since last November, as the fall-out from the Fed’s prospective tapering of QE continues. Fed Chairman, Bernanke, will cut the Feds $85 billion in monthly bond purchases by $20bn at the Sept 17-18 policy meeting according to 44% of economists in a Bloomberg survey.
The S&P and Dow fell by 2.5% and 2.3% respectively whilst the fallout in Europe was larger as the DAX fell by 3.3% and the FTSE lost 3% – their worst day of 2013. Gold investors also took a bath, losing 6.8%, whilst Silver lost over 10% and is now down over 60% from it’s highs of May 2011. The markets were also not helped by the strong rumours that China will clamp down on credit growth.
Positive US economic data helped for a while, with Existing Home Sales rising to 5.18M in May from 4.97M in April whilst the Philly Fed Index rose to 12.5 from -5.2, but after a brief respite sellers returned and markets got hit hard into the close.
Today is a much quieter day for economic data and will give the markets time to absorb what has happened in the last two days. We have no US data of note due howvwer this morning we have the UK Public Sector Net Borrowing and the Euro-Zone Current Account. Today is also the expiration of all the June Futures contracts for the equity markets and this will add to the volatility.
September S&P 500
The exceptional volatility continues and today promises to be no exception as the June Futures contracts expire at 2.35pm whilst the Options contracts do not expire until just before the cash closing at 9pm. From past experience I have noted that when we have an outstanding Gap in the market we tend to get two nice rallies from this Gap and on the third test we break through it as happened yesterday and in the process we have left a large Gap from Wednesdays close at 1623.
The S&P has now fallen from 1648, after the FOMC announcement, to yesterdays low at 1577 an incredible 71 handles in 24 hours. I bought the S&P in small at 1601 and I was quickly stopped out at 1595 and I am now flat. Today I will lower my sell level to 1602/1607 in small size with a 1610 stop and if I am taken short and subsequently stopped out I will be a more aggressive seller from 1618/1625 with a 1630 stop. I will only look to buy the market if we trade back to 1578/1582 with a 1575 stop which is just below yesterday’s low. It is important, after the huge moves we have had over the last month, not chase the trade and be patient.
Euro/USD
The Euro worked very well as the market held the important 1.3180 support zone before having a nice rally. I bought the Euro at 1.3180 and I was able to cover this position at 1.3230 and I am now flat. Today I am going to leave my buy and sell levels the same as yesterday in that I will be a buyer on any dip to 1.3170/1.3190 with a 1.3155 stop and I will only be a seller on any rally to 1.3280/1.3310 with a 1.3330 stop.
September DAX
As the June contract expires this morning I have now rolled to the September contract which is trading at a premium of 10 points over the cash market. I did not trade the Dax yesterday as the market just fell shy of my 8110 sell level before getting slammed. My plan of not being long the market proved to be correct but unfortunately I was not short. Given how oversold we are I will be a small buyer on any dip to 7875/7910 with a 7850 stop. My only interest in selling the Dax is if we rally back to 8040/8060 with a 8080 stop.
September FTSE
The June FTSE contract also expires this morning and I have now rolled to the September contract which trades at a discount of 47 points to the cash market. The fact that the cash market managed to close below 6220 is very bearish and opens up the possibly of the market trading as low as 5900 over the coming weeks. Today I will be a seller of the September contract on any rally to 6180/6210 with a 6230 stop while I will also look to buy the FTSE on any dip to 6040/6070 with a 6020 stop.
September Bund
The Bund worked well yesterday as the market dropped down to my 142.00 buy level and after a small rally I was able to cover this position at 142.30 and I am now flat. The Bund is back down this morning and is again approaching oversold levels. I will be a buyer on any dip to 141.70/141.90 with a 141.55 stop.
September Nasdaq 100
Unfortunately after a fantastic run in the Nasdaq over the last month I lost money yesterday as after the market dropped down to my 2915 buy level I was quickly stopped out of this position at 2890 and I am now flat. Given today is contract expiration day I am going to stand aside and wait until Monday before making my next trade in this market.
Silver Rolling Contract
Silver fell an incredible 10% yesterday and as a result I was quickly stopped out of my small 20.40 long position at 19.90. I said yesterday that if I was stopped out of this market I would be a more aggressive buyer in front of 19.50. The market did indeed make a new low at 19.44 and I bought Silver again at 19.60. I will raise my stop to 19.20 on this position as I look for the market to trade higher over the next week. It is interesting this morning that Silver is at the bottom of the Bollinger Band but the Williams Index has started to turn up.
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