ECB President Draghi stepped up to the plate at yesterday’s press conference, setting equity markets alight and scuttling the EUR. Rather than an expected non-event, Draghi effectively preannounced further easing in policy at its 3 December meeting saying that the “strength and persistence” concerns of growth prospects in Emerging Markets and possible repercussions for the Euro-Zone economy from developments in Financial and Commodity markets – which are slowing the return to inflation to target means the “degree of monetary policy accommodation will need to be re-examined added to is at our December policy meeting”. More policy accommodation is on for December, whether that means extending QE, beefing up QE now, and/or another cut in interest rates taking the deposit rate further into negative territory.
As next Monday is a Bank Holiday in Ireland and the fact that I am travelling the next update will be on Tuesday morning.
For anybody following my new Platinum Service it lost 125 points yesterday and is now ahead by 1167 points for October. The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
Dragi knew full well that by announcing a full-scale reassessment policy at the December meeting, the markets would build it in, and that’s what happened. The Euro immediately gapped lower, dropping a big figure from 1.13 within minutes, trading in early European trade this morning at around the 1.112 level. European equities surged, as did European Bonds, the German 2y yield at a record low of -0.316%, down 6bps, the Italian 10 year bond down a cool 15.6 bps to 1.45% less than 100 basis points over its German BUND counterpart. In short, further ECB easing has been built in. The Aussie was largely on the side-lines in a choppy day, not breaking new ground, trading between the high 71s and the low 72s, trading at 0.721 this morning. The DAX and S&P closed higher by 2.5% and 1.9% respectively while the VIX fell a huge 10% to settle back below 15 at 14.92.
In other news, US House Republican Paul Ryan was a step closer to getting the support of the various Republican House caucuses to be the new House Speaker with a vote likely mid next week. Meanwhile the US Treasury delayed its two-year note auction previously scheduled 27 October, fearing it may not be able to settle on November 2 before the November 3 National Debt ceiling limit bites. The Treasury’s five and seven year auctions will proceed as planned, both settling of November 2. It’s of course these be voted on as well once the new House speaker is appointed.
Meanwhile the US Economic data release for yesterday were mixed to lower.
Separately, there was also an unsourced wire report the Chinese government is beefing up financing for local governments to boost infrastructure spending, double funding from 300b yuan to 600b.
This morning on the economic front we have German and Euro-Zone Manufacturing/Services PMI’s at 8.30 am and 9.30 am respectively. This is followed at 12.00 pm by UK CBI Reported Sales. Finally at 2.45 pm we have US Markit Manufacturing PMI.
December S&P 500
Unfortunately the S&P just missed my 2005 by level by 3.5 Handles before going on to have a 40 Handle rally on what was an incredible trading session. The S&P rally was enhanced by its break and close above its 200 Day Moving Average for the first time since August 19th. Thankfully we had no sell levels yesterday in both the DAX and S&P as all shorts were destroyed and are here this morning scratching their heads wondering what just happened since the Oct 2nd low at 1883 on the S&P after the horrific Non-Farm Payroll data. The rally yesterday afternoon has left another large ‘Open Gap’ from Wednesday’s late sell-off close at 2010 to yesterday afternoon’s low print on the Chicago Open at 2030. We now have two twenty plus Handle ‘Open Gap’s left in the past three weeks which is very unusual and I would expect the Gap from yesterday to be at least tested over the coming trading sessions. The S&P is overbought on a Daily Weekly Basis and is trading at the top of its Williams Index but not its Daily Bollinger Band which is still 30 Handles below current pricing. Today I will be a small seller on any further rally higher to 2065/2071 with a 2076 stop. My only interest in buying this market over the coming days is on a dip back into the 2010/2030 ‘Open Gap’ where I would be an aggressive buyer from 2015/2025 with a 2007 stop which is just below yesterday morning’s low print.
EUR/USD
It is impossible to know where people got long following the post Dragi sell-off after announcing more QE at the December Meeting. I went long at 1.1185 only to be stopped out of this position at 1.1140 as outlined earlier to my Platinum Members and I am now flat. No Central Bank wants a strong currency and the Fed are in the same boat on this view although they will not publically announce this fact. Next week’s FOMC Meeting will be really interesting because in my opinion there is no chance of a Fed Rate hike at this time and I would expect the Dollar to weaken post the FOMC but the key question is from what level. Today I will again look to buy the Euro on any further move lower to 1.1020/1.1070 with 1.0990 stop. The Euro needs to break and close below 1.0800 for me to turn bearish.
December Dollar Index
Just like the Euro above I went short the Dollar at 96.00 only to very quickly stopped out of this position for a small loss at 96.30 and I am now flat. The day I will look to go short again on any rally higher to 96.70/97.00 with a 97.25 stop. I still do not want to be long the Dollar at this time especially with the FOMC Meeting on Wednesday.
December DAX
Thankfully I had no sell level in the DAX yesterday as the market just rallied nearly 400 points from Tuesday’s low print. If you look at the Daily Chart the DAX has massive overhead resistance at the previous break down level at 10650/10700 and initially I would expect this level to hold. The DAX closed last night outside the top of its Bollinger Band and Williams Index and today I will be a small seller from 10660/10710 with a 10750 stop. I do not want to be long the DAX at this time as I want to see how the market reacts to the overhead resistance as mentioned above.
December FTSE
Interestingly the FTSE found it hard to move higher yesterday with the market only closing up by 0/4% in contrast to the 2.5% rally in the DAX. Yesterday’s move higher eventually led to me going short at the top of my sell level at 6375. I am still short and today I will move my stop higher on this position to 6420. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
Yesterday was another great example of how important it is to have stops in the market as after I went short at 17280 I was very quickly stopped out of this trade at 17360 and I am now flat. The loss yesterday offset Wednesday’s gain. I got a couple of emails from members wondering why I went short the Dow yesterday and not the S&P and the simple answer was I only wanted to be short one market and not two. Secondly I expected the Euro to weaken and this is not good for the Earnings of the Dow stocks as we have seen in the reported Earnings of the Dow stocks over the past two weeks. This is why I make the point that no Central Bank wants a strong currency at this time. It is incredible to see that the Dow has now rallied 1500 points this month for one of its best trading months in a long time. Today my only interest in going short the Dow is on a further rally higher to 17660/17740 with a 17780 stop. I do not want to be long the Dow at this time.
December BUND
I am still flat the BUND and I will continue to look to go short on any move higher to 158.80/159.20 with a 159.50 stop. Otherwise I will stay flat as I do not see and edge here at these levels.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1148/1155 with an 1144 stop.
Silver Rolling Contract
No change as I am still long at 15.88 with the same 15.60 stop. Again if I am stopped out of this position I will be a more aggressive buyer in front of 15.30 with the same 14.80 stop.
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