Finally we are seeing some two way volatility returning to the markets. The key event yesterday proved not to be the US May PCE Deflators, which came in as expected for both the headline at 1.8% and the core at 1.5%, but the Personal Income and Spending numbers. Income rose by 0.4% as forecast but Spending rose only 0.2% against 0.4% expected. This saw economists rushing to shave at least 0.5% off their Q2 GDP forecasts. This, together with reported month-end related demand, countered a poor 7-Year Note Auction and some very hawkish comments from St Louis Fed President, James Bullard which drove 10-Year Treasury Yields down 3 basis points to 2.53%.
Bullard re-iterated that the Fed is close to having achieved its dual mandate and said that he thinks QE Bond buying is very likely to end in October. He predicts that the first Fed Rate hike will be in Q1 2015 and thinks that the normal Fed Funds Rate is 4-4.25% which is above the 3.75% median in the latest FOMC projections. US Equities did not like the Personal Spending data although they may also have suffered some month end rotation into Bonds leaving the US Indices down 0.1% on average.
On the Currency markets Sterling received a boost from the release of the Bank of England’s consultation paper on macro-prudential rules for Mortgage Lending. These would impose a 15% limit on the number of mortgages a lender could advance with a greater than 4.5 loan-to-income ratio. There would also be a stress test to determine if borrowers could withstand a 3 percentage point increase in mortgage rates.
This morning on the economic front we have UK GDP and Current Account Balance at 9.30 am. This is followed at 10.00 am by Euro-Zone Consumer Confidence and Business Climate Indicator. At 1 pm we have German CPI which will be closely watched by the markets and finally at 2.55 pm we have US University of Michigan Consumer Confidence.
September S&P 500
As I mentioned above we are finally seeing some two-way volatility returning to Equity markets over the past few days especially since last Tuesday’s Key Day Reversal in both the Dow and S&P. The S&P plan worked well yesterday as after I posted it had a nice sell-off which enabled me to cover my 1951 short position from Wednesday at 1945. The market then dropped hard to a low at 1936.75 which enabled me to buy at 1940 and after a nice rally soon after the US markets opened I was able to cover this long position at 1947 and I am now flat.
The economic news continues to be very mixed and certainly does not justify stock prices at these lofty levels but until we see two decent consecutive down days it is very difficult to be short the market for any length of time which means you have to keep taking any profit that may arise after going short. Today is both month and quarter end and it was interesting to see the market yet again rebounding after being sold off earlier in the trading session. Today I will be a small buyer on any dip to 1936/1940 with a 1932 stop. I will also still be a seller on any rally back to 1950/1954 with a 1961 stop which is just above contract highs made last Tuesday.
Euro/USD
The Euro plan also worked well as shortly after I posted it traded down to my 1.3600 buy level. The Euro is trading higher this morning and I have now covered this position at 1.3630 and I am now flat. Today I will again be a small buyer on any dip to 1.3585/1.3605 with the same 1.3565 stop. I still do not want to be short the Euro at this time.
US Dollar Index
Still very boring and range bound with very little movement in the Dollar. I am still long at 80.25 and I will leave my stop the same at 79.90.
September DAX
Yesterday was a very frustrating day in the Dax as I expected it to rally with today been month and quarter end but having watched it trade down to my 9830 buy level I was quickly stopped out of this position at 9795 only to watch the market rebound strongly this morning – I am still flat. Today I will again be a small buyer on any dip to 9770/9800 with a 9745 stop which is just below yesterday’s low. I will also lower my sell level to 9890/9920 with a 9935 stop.
September FTSE
The FTSE plan worked well yesterday as it continued to drop after I posted which allowed me to buy the market at 6660 which was right at the bottom of the Bollinger Band. It then had a nice rally into the New York close which allowed me to cover this position at 6700 and I am now flat. Today I will again be a buyer on any dip to 6660/6680 with a 6645 stop. I do not want to be short the market at this time.
Dow Rolling Contract
Just like the Dax, the Dow was also very frustrating as after the market dropped down to my 16790 buy level I was stopped out of this position right near the lows of the day at 16755 and I am now flat. I had expected the market to rally as this week is a seasonally very strong which can run into next week’s 4th of July US Holiday. Today I will again be a small buyer on any dip to 16760/16790 with a 16730 stop. I still do not want to be short the Dow at this time.
September BUND
No change as I am still short in small at 146.85 with the same 14725 stop which is just above yesterday’s high at 147.18.
Gold Rolling Contract
I was also very unlucky with my Gold plan yesterday which made a low of 1306 but unfortunately I was not filled at this price and I am still flat with it trading at 1320 this morning. I still believe that Gold will trade back to 1350/1370 and especially if we can hold the 1300 support level. Today I will raise my buy level to 1306/1312 with a 1299 stop.
Silver Rolling Contract
I am still long Silver from earlier in the month at 19.58. I have raised my stop to 20.90 on this position as it finally broke the 21.20 resistance level overnight. If I am stopped out of this position I will look to reset on any move lower to 20.50/20.75 with a 20.25 stop.
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