US Equities closed higher yesterday erasing Wednesday’s losses as the Dow closed for the first time over 16,000. It was helped by a combination of data showing an improvement in the jobs market and companies, including Union Pacific, Johnson Controls and Ace, announcing plans to repurchase their own shares. As a result of the buoyancy the Dow, S&P and NASDAQ closed up 0.7%, 0.8% and 1.25% respectively. The Weekly Jobless Claims dropped 23,000 to 323,000 which is the lowest since the end of September.
European Equity markets were helped by comments from ECB President Dragi who said that keeping interest rates low for an extended period carried risks and that policy makers had weighed up these risks carefully before they reduced the benchmark rate to a recent low two weeks ago. Dragi told reporters that a deposit rate below zero is a policy option for which the Bank is technically ready. The Euro rebounded off its early morning low of 1.3400 to trade back to 1.3500 on his remarks. Dragi’s comments are seen by economists as an effort to try and heal any divisions in the Governing Council and between Countries by playing the German line on the need for sound macro policies and structural adjustment.
This morning on the economic front we have German GDP and the very important IFO Business Climate Index. Later from the US the only data of note is the Kansas City Manufacturing Activity Index at 3 pm.
December S&P 500
The latest Investors Intelligence Advisors Survey released yesterday (a survey that plots sentiment towards stocks in a weekly poll) rose to its third highest level since the 1987 crash. Its latest reading is 77.2% and is just below the extreme of 77.6% reached in August 1987, the month stock markets topped prior to the crash that followed in October that year. I am not trying to scare anyone but I am just giving another example of how overvalued and stretched this market is. Again, as I have mentioned all year, it is very hard to fight the Fed and as long as they continue with their extreme bond purchasing programme it is very hard to be short the market for any length of time.
Yesterday, as expected the S&P had a nice rally off the now key 1775 support level as the market looks to finally challenge and break the 1880 resistance level. After I posted yesterday morning the S&P started to rally and I was able to cover my long 1778 position at 1790. The market continued to trade into my sell level and I went short at 1793. I am still short and I will raise my stop to 1798 as the high so far is 1795.75. If I am stopped out of this position I will be a more aggressive seller from 1803/1808 with a 1815 stop. I have to use a wider stop given the volatility.
Euro/USD
The Euro derived support from Dragi’s comments yesterday and is nearly back to where the market sold off after the announcement that the ECB were considering a negative interest rate for deposits. After I posted yesterday, the Euro traded higher and reached my sell level at 1.3470 before stopping out of this position this morning at 1.3510 and I am now flat. My only interest in selling the market is on a rally to 1.3560/1.3590 with a 1.3610 stop. I will also be interested in buying the US Dollar Index on any dip to 80.20/80.50 with a 79.80 stop.
December DAX
Just as I posted yesterday morning Dragi began his speech and the Dax started to rally. The market reached my 9180 sell level and I am still short in small size with the same 9240 stop. Today I will be a small buyer on any dip to 9120/9150 with a 9095 stop.
December FTSE
I am happy that I had a tight stop on any short position yesterday as after the FTSE reached my 6665 sell level I was quickly stopped out of this position at 6685 and I am now flat. The market continues to trade heavy versus the other major Equity Indices and today I will be a small seller on any rally to 6715/6730 with a 6740 stop. I will also be a small buyer on any dip to 6620/6640 with a 6595 stop.
Dow Rolling Contract
The Dow continues to frustrate me in a large way as every time I put a trade on it looks good for a short period only for the market to change direction and quickly stop me out. Yesterday after I posted, the Dow just rallied from the off and after I went short at 15970 I was quickly stopped out of this position at 16010 and I am now flat. I am going to stay flat the Dow until I feel my edge returning to this market.
December BUND
The Bund worked well yesterday as shortly after I posted the market traded down to my 140.70 buy level with a 140.58 low and after a nice rally I was able to cover this position at 141.00 and I am now flat. The Bund needs to break and close back above 141.20 for the market to look better technically. For this reason my only interest in buying the market is on a drop to 140.00/140.25 with a 139.85 stop.
Gold Rolling Contract
Gold again closed below the very important 1250 level and if the market does not close back above this key level today then I believe it could accelerate lower. Today I will raise my buy level to 1200/1220 with a wider 1175 stop. Given how oversold Gold is trading I do not want to be short at this time.
Silver Rolling Contract
No change as I am still a buyer on any dip to 19.25/19.60 with the same 18.95 stop.
Recent Comments