Following a reasonably volatile trading session in Asia, yesterday’s sub 50 reading in China’s Manufacturing PMI continues to reverberate in Europe and North America. The Dow had its worst day since last August as it closed down 175 points having been down nearly 275 points at one stage. In what are choppy and still not clearly-trending 2014 markets, it looks like being a case of good news going largely ignored whilst negative news gets pounced on. Thus beyond the continuing influence of yesterday’s China PMI number the usually little watched, Market US Preliminary PMI (still a poor cousin of the ISM version) fell to 53.7 from 54.4 and had an impact on the Dow coupled with the slightly weaker than expected December Existing Home Sales Report.
Support for the Euro has come from the better than expected flash PMI’s for Germany and the Euro-Zone, where the latter’s composite reading rose to 53.2 from 52.1. This is the strongest reading since August 2011 with strength again led by the German Manufacturing sector which came in at 56.3 versus 54.3 last month. The Euro rose from 1.3550 to nearly 1.3700 on this news whilst Sterling continues its recent strong run even though in Davos the Bank of England Governor last night abandoned the forward guidance linking Monetary Policy to the Unemployment Rate.
On the economic front we have no news out from any of the major countries. However the Economic Summit is taking place in Davos today and over the weekend and is been attended by all the major Central Bankers and we can expect comments to come out at any time from the likes of Carney, Dragi and BOJ Governor Kuroda which potentially could be market moving.
March S&P 500
Yesterday was one of the wildest trading days for the S&P since the last FOMC Meeting on December 18. The S&P having opened lower had very little upside movement until the last hour when it rose from a 1813.75 low to close at 1824 as the NASDAQ cut its losses in half in the same time frame. The S&P has also left a sizeable GAP yesterday from 1833.50/1840.50 and I would expect this Gap to be challenged ahead of next week’s FOMC Meeting.
Shortly after I posted yesterday morning the market traded down to my 1828 buy level before quickly stopping me out of this position at 1823. The market continued to fall and I was very lucky as it traded down to my 1814 buy level and after a very nice rally into the close I covered this position at 1823 and I am now flat. As I mentioned yesterday I still believe we will get a rally into the FOMC next week and that is why I am loathe to short the market. Today I will be a buyer from 1817/1821 in small size with a wider 1813 stop which is just below yesterday’s low. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1802/1807 with a 1799 stop. My only interest in selling the market is on a rally to 1836/1840 with a 1844 stop.
Euro/USD
Just before I posted yesterday the Euro rallied 80 points on the French PMI which was released early. My fears that the Euro could rally were certainly justified by yesterday’s movement and this is why I have not wanted to be short the Euro this year. Again the Bollinger Bands well worked as the market has now gone from the bottom of the band to near the top of the band this week. I am still flat the Euro and today I will be a small buyer on any dip to 1.3630/1.3660 with a 1.3610 stop. I still do not want to be short at this time.
US Dollar Index
It is amazing that we are seeing such anomalies in the Dollar Index as the Aussi Dollar has just made a new low this morning at .8650 down from .8850 yesterday and yet the Euro has rallied from 1.3550 to 1.3700 at the same time. The Canadian Dollar has also fallen dramatically against the US Dollar as we are now trading over 1.11. I was finally stopped out of my long 80.95 position for a very small loss at 80.85 and I am now flat. I still believe the best way to be long the US Dollar is via the Dollar Index rather than sorting the Euro and the price action this year is certainly telling me this. This morning the Dollar Index is testing key support at 80.50 and I will be a small buyer here with a wider 79.80 stop which is just below the lows made in late December.
March DAX
As I was writing my commentary early yesterday morning I must say I never expected to be able to buy the Dax at 9630 which seemed so far away at the time. However the market made a low of 9604 before having a strong rally into the 9 pm close and I was able to cover this position at 9655 and I am now flat. The key level for the Dax is 9585 and as long as we can stay over this point the market is okay. Today I will again be a small buyer on any dip to 9580/9605 with a tight 9560 stop. My only interest in selling the Dax is on a rally to 9660/9690 with a 9710 stop.
March FTSE
The FTSE traded down to my 6725 buy level late yesterday and I am still long. I will lower my stop slightly to 6685 which is the next key support level. A break and close below 6685 will be bearish.
Dow Rolling Contract
It is amazing with the Dow closing down 175 points yesterday that the Transportation Average did not confirm the decline in the Dow and actually rose 21 points. The other interesting happening yesterday was the percentage of Dow Industrial Stocks trading above their 10 day average actually rose which is incredible on a day when the Dow fell 175 points. After I posted yesterday the Dow quickly fell to my 16250 buy level before quickly stopping me of this position at 16210 and I am now flat. The Dow is now trading at the bottom of the Bollinger Band but the Williams Index is not quite at the levels at which I am comfortable to buy the market. Today I will be a small buyer on any further dip to 16100/16130 with a 16070 stop. I still believe that whatever low is put in today will be the low ahead of next week’s FOMC Meeting.
March BUND
The Bund having traded heavily all morning finally started to rally after the stock markets started to fall. It traded up to my 141.80 sell level before quickly stopping me of this position at 142.10 and I am now flat. Yesterday was another great example of how important it is to have stops in the market as it is trading much higher this morning. Even though the Bund is very overbought my only interest in selling is on a further rally to 142.80/143.10 with a 143.25 stop.
Gold Rolling Contract
Gold has been very frustrating to trade over the last week as having been stopped out of my long 1255 position at 1242 on Tuesday the market turned around and traded higher. I do not want to chase Gold at these levels and today I will raise my buy level to 1235/1242 with a 1228 stop which is just below yesterday’s low.
Silver Rolling Contract
Silver, having just missed my 19.60 buy level yesterday morning, also turned around and followed Gold higher. Today I will raise my buy level to 19.55/19.85 with a 19.40 stop.
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