The start to new year trading began with a series of relatively random market moves each one not quite gelling with one another. There is potentially some kind of signal in the general wash but it might take an increase in market participation, liquidity and news-flow in order to be revealed. Many of the moves are suggestive of position unwinding in the majors with the Japanese Yen and Australian Dollar outperforming. The US Stock markets declined today with the S&P 500 dropping 0.85% and in the process starting the year lower for the first time since 2008 after it had posted its biggest gains in more than 15 years. Gold ended the day up 1.75% whilst Oil fell 3% and US 10 Year Bond Yields fell and in the process closed back below the key 3% level. The US Dollar rose across the board with the Euro having touched 1.3900 last week falling back to 1.3630 yesterday. Markets were not helped by the sell-off in emerging markets yesterday especially Turkey, Egypt and Lebanon whilst the tensions between China and Japan are not easing. The markets are also not helped by the lack of liquidity with most traders not back at their desks until next Monday.
This morning on the economic front we have UK Construction PMI and Mortgage Approvals. This is followed by Spanish Unemployment and Euro-Zone Money Supply. We have no economic data of note from the US but later this afternoon Bernanke is speaking at a economic conference in Philadelphia.
March S&P 500
The S&P began the year on the defensive and after opening lower had a quick rally before the market was sold off and we closed lower. Shortly after I posted the S&P opened in my buy zone at 1835 and after an initial rally I was able to cover this position at 1839 and I am now flat. I was very surprised at how weak the US equity indices were today but the market is not helped by the lack of traders with most trading desks still half empty. We have no economic data from the US today and all eyes will turn to what Bernanke will say this afternoon from Philadelphia. I do not want to be short the S&P ahead of his speech and today I will be a small buyer from 1824/1828 with a 1819 stop which is just below yesterday’s low. Today I will also lower my sell level to 1840/1844 with a tight 1847 stop.
Euro/USD
To emphasise how illiquid the markets are trading, one only has to look at the severe volatility that is happening in the Euro. I firmly believe the US Dollar is very undervalued and that all rallies in the Euro are to be sold as long as we stay below the key 1.3900 resistance level. It is amazing that the Euro has gone from the top of the Bollinger Band to the bottom of the band in just one trading session. Today I will be a small buyer on any dip to 1.3580/1.3610 with a 1.3560 stop. I will also lower my sell level to 1.3720/1.3750 with a 1.3770 stop. Due to the illiquid market conditions I do not want to chase the market lower or higher outside the parameters outlined above.
March DAX
Shortly after I posted yesterday morning the Dax sold off and this theme continued for the rest of the day with very few rallies. The Dax had a huge move up in December and was way overbought and trading at the top of the Bollinger Band and Williams Index. I am glad that I had no buy level in the market yesterday. The key level for the Dax going forward is 9350 and as long as we stay over this level the market is ok but a break and close below here will be bearish. Today I will be a small buyer from 9350/9380 with a tight 9330 stop. I will also lower my sell level to 9495/9525 in small size with a 9540 stop.
March FTSE
Shortly after I posted yesterday morning the FTSE was trading at my 6660 buy level. I am still long and I will raise my stop to 6640 on this position. I still do not want to be short the FTSE at this time as it was the one index to outperform the other major indices yesterday and it will be interesting to see if this theme continues over the next few days.
Dow Rolling Contract
I am glad that I took the decision to stand aside in the Dow yesterday. The Dow has key support from 16150/16200 and it will need a closing break of this level for me to turn bearish the Dow. Today given that Bernanke is speaking later I will be a small buyer form 16400/16440 with a 16360 stop. My only interest in selling the Dow is on a rally to 16550/16580 with a 16610 stop.
March BUND
The Bund just missed my 138.60 buy level before spending the rest of the day trading higher. I still like the Bund and given how oversold that the market is trading I will raise my buy level to 138.75/139.00 with a 138.55 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold worked really well yesterday as we got a nice rally off the key 1180/1200 support zone which was tested last Tuesday. After a nice rally yesterday morning I was able to cover my 1195 long position at 1228 and I am now flat. I still like Gold as long as we stay over this key 1180/1200 support and today I will be a buyer on any dip to 1205/1215 with a 1198 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1180/1190 with a 1175 stop.
Silver Rolling Contract
Silver also worked well yesterday and after a nice rally I was able to cover half my long 18.90 position at 20.30. I will raise my stop on the other half position to 19.50 as I still look for Silver to rally hard from here this year. Silver is down nearly 65% from its highs made in May 2011 and sentiment towards it is near historic lows.
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