If you pull an elastic band hard enough, it will snap back and might hurt. This certainly was the case in Bond Markets yesterday but we also know that the band runs out of energy at some point. We might just have seen the last bit of energy in yesterday’s trading session especially in the German Bund as I honestly cannot ever remember a trading session for Bund like what occurred in the past 24 hours. Bond Yields ended the day flat while US Equities closed higher having been substantially lower while the US Dollar was stronger. The other dramatic news this morning is the result of the UK General Election which saw the Conservatives totally obliterate the Labour Party despite Polls stating before polling that it would be too tight to call. At the time of writing the BBC are giving the Conservatives 325 seats which will be enough for them to keep power.
While German Bunds closed relatively unchanged yesterday, a look at the run up over the last week and the intraday moves yesterday are astonishing. There has been an extreme reaction to the almost zero-yield earlier in the month. There has been a reassessment of the risks and half a percent for a 10 Year Bond was thought to have been too low, with the long positions rapidly unwound as Bond Yields have snapped higher to nearly 70bps before buyers returned with a vengeance as the Bund has now rallied over 350 points off the early morning low despite the fact there was no specific news.
The price action suggests that the extreme move higher might have run out of steam. It is thought that perhaps this yield move is driven by a stabilisation in Oil prices, some better European data and rising term premium. Add to this the electronic platforms were halted, given the volumes and sharp price moves, and it all adds to volatility.
If we get to extremes in price of assets, it does not take much to get reversals, particularly at economic turning points. What then matters as if you believe the reversals are warranted or sustainable. In the case of Bunds, it depends if you believe the ECB will need to ease more or not. What we can say is that there remains a lot of uncertainties ahead and these moves are unlikely to move in a straight line.
At present, it is the Bond market which is driving the news and other market’s direction. The reversal at the end of the day saw the US Dollar recover some gains from the past week with Euro trading at 1.1200 this morning from a high of 1.1390 24 hours ago.
This morning on the economic front we already had German Industrial Production which again disappointed coming in at -0.5% versus +0.4% expected and this is helping to support the Bund in early trading. At 1.30 pm we have US Non-Farm Payrolls where the expectation is for a 230K rise compared to April’s awful 126K print. The Payroll Report will set the tone for trading for the rest of the day.
June S&P 500
The S&P plan worked very well yesterday with both my buy level and sell level getting triggered in what turned out to be a reversal day in nearly all the main markets that I follow. Shortly after I posted yesterday morning the S&P got slammed with the market eventually hitting my 2062 buy level with a 2057 low before having a substantial rally which enabled me to cover this position at 2072. Subsequently the market hit my 2076 sell level before having a very quick sell-off to below 2069 which enabled me to cover this position at 2070 and I am now flat. The market continued to rally for the rest of the trading session and this rally has continued this morning on the back of the surprisingly strong showing by the Conservatives in the UK General Election. I am going to stay flat until we get the Non-Farm Payrolls out of the way and if the market rallies after the announcement I will again look to go short from 2096/2101 with a 2105 stop. It is amazing that every-time the S&P looks like it is going to roll-over buying appears out of thin air and brings this market back, as yet again the S&P managed to close over the now really key support at 2065/2075. Today I will again to look to buy the S&P on any dip to 2075/2081 with a 2069 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2060/2065 with a 2056 stop which is just below yesterday’s low.
EUR/USD
The Euro plan also worked out very well yesterday as shortly after I posted the Euro traded higher to my 1.1360 sell level as indicated by the Bollinger Band and Williams Index which yet again proved across nearly all main markets what a valuable technical indicator they are. The Euro made a high of 1.1390 before getting slammed to a low of 1.1235. This move lower enabled me to cover my short position at 1.1290. This move lower overnight has seen me go long the Euro this morning at 1.1190. I will leave a tight 1.1150 stop on this position and if I am stopped out of this trade I will be a more aggressive buyer on any further dip to 1.1080/1.1120 with a 1.1035 stop.
June US Dollar Index
The Dollar plan also worked well as shortly after I posted the Dollar was trading at my 94.00 buy level before having a substantial rally which enabled me to cover this position at 94.60 and I am now flat. Today I will look to go short on any further move higher to 95.30/95.60 with a 95.85 stop. Given the fact that we have Non-Farm Payrolls at 1.30 pm I do not want to be long the Dollar at this time.
June DAX
The DAX plan also worked out really well yesterday as when I wrote my commentary I said that I would be a reasonably aggressive buyer on any dip to 11170/11220. After I went long at 11220 the market bottomed in front of 11170 before mounting a near 350 point rally off this now very important support. This rally enabled me to cover my long 11220 position at 11380 and I am now flat. Today I will be a small seller on any further rally to 11540/11580 with an 11620 stop. My only interest in buying the DAX today is on a dip to 11350/11410 with a 11320 stop.
June FTSE
The Bollinger Band and Williams Index again proved what a valuable indicator they are as yesterday morning when I wrote my commentary the FTSE was trading way outside its BB and at the bottom of the Williams Index. Nearly every UK General Election manages to surprise and yesterday was no exception with the Conservatives winning despite the Polls saying it was too close to call. Yesterday after I posted the FTSE was trading at my 6830 buy level and while the market looked heavy for most of the trading session news of a Conservative victory has sent the markets soaring this morning which has enabled me to cover this position at 6980 and I am now flat. This morning I will be a small seller on any further rally to 7020/7060 with a 7080 stop. I will also be a small buyer on any dip lower to 6910/6940 with a 6895 stop.
Dow Rolling Contract
I was trying to be too clever with my 18010 short position from Wednesday as shortly after I posted the Dow traded lower to a 17685 low before having a spectacular 330 point rally which stopped me out of the rest of my short position at 17950 and I am now flat. I hate giving away easy points like this as they are so hard to come buy but I still believe that this market is substantially overvalued and due a massive correction. Therefore I will continue with my strategy of selling rallies with a tight stop as this plan has worked out so well in 2015. Today I will again be a small seller on any further rally to 18040/18090 with a 18130 stop. I still do not want to be long the Dow at this time despite yesterday’s price action.
June BUND
Initially the Bund plan did not work out so well yesterday as shortly after I posted the Bund traded lower to my 152.80 buy level before literally stopping out of this position a few minutes later at 152.25. When I wrote my commentary I said the Bund would have substantial support from 150.20/151.90 but not in my wildest dreams did I expect the market to trade as low as 151.46 before literally having a 350 point rally to this morning’s high. After I was stopped out of my long position I bought the Bund again at 151.90 and after one of the best technical Key Day Reversals that I have witnessed in a very long time I was able to cover this position at 153.90 and I am now flat. The Bund has good resistance from 154.70/155.20 and today I will be a small seller in this area with a 155.45 stop.
Gold Rolling Contract
No change as I am still long at 1182 with the same 1172 stop.
Silver Rolling Contract
No change as I am still long at 16.40 with the same 15.90 stop.
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