The Sep FOMC minutes came and went and when all is said and done, it has not clarified whether the Fed is likely to be hiking before year end or later. As is quite often the case – and with some increased divergence of views – you could read into the Minutes whatever you wanted. Initial wire headlines were a combination of the various mixed threads: “many Members see lift-off conditions met this year”, “several Members concerned about downside risks to the outlook” and “Members viewed risks to outlook as nearly balanced”. All in all, the majority view is to expect that lift-off will happen in coming months – as we know from Fed Chair Yellen -but with plenty of caveats to hold off and wait.
For anybody following my new Platinum Service it made 55 points yesterday and is now ahead by 175 points for October. The previous three months saw gains of 2833, 2195, 1810 and 3045 points respectively.
In that respect, low inflation remains a concern and the Fed is just not confident enough yet that inflation will head back to its 2% target over the medium term. One interesting snippet was a view from officials to let the Jobless Rate fall below Full Employment, not that this should be too surprising since according to the Fed’s pegging Full Employment in the low 5s/high 4s, they are already there. Inflation, EM volatility, net exports, and Payrolls will be key. There is no more Payrolls before the Oct 27-28 FOMC , virtually ruling out lift-off then.
With the big dollar running into some headwinds recently, the market was looking for reasons to sell it lower and rightly or wrongly that was the initial but only short-lived reaction. It was the same for Treasury yields; net reaction there has also been neutral. US stocks did make some net post FOMC gains.
The AUD initially jumped from 0.7240 to around 0.7270, pulled back but holding on to most of those gains in a risk on mood still. With China back after its holidays, Iron Ore bounced back $2.83/t, retracing virtually of late last week’s mid holiday fall.
Elsewhere, the BoE left rates steady as entirely expected, the voting remained at 8-1, Sterling pulled back on a dovish outlook for delayed lift-off from the BoE, but much of this was retracing a rally into the meeting, Sterling holding up overall.
US Jobless Claims were again on the low side, still keeping the market guessing on the mixed messages as far as the state of the US jobs market is concerned.
European Markets are opening higher this morning on the back of the strong finish to US Stock markets last night. The markets are also helped by the 1.64% rise in the Nikkei which is now comfortably trading back above 18,400 having close below 17,000 only last week.
This morning on the economic front we already had the release of French Industrial Production which printed a very robust 1.6% versus 0.6% expected. However last month was revised down from -0.8% to -1.1%. At 9.30 am we have the UK Trade Balance. This is followed at 1.30 pm by the Canadian Unemployment Rate and US Import Prices. Finally at 3.00 pm we have US Wholesale Inventories.
This afternoon at 2.10 pm and 6.30 pm sees more Fed speak, with Fed presidents Lockhart and Evans both speaking respectively on Monetary Policy. Both are voters on the FOMC this year.
December S&P 500
The S&P has now rallied by 127 Handles since last Friday’s post NFP low at 3.00 pm in a week when the economic news has been very weak. Certainly this past week has seen the market react positively to bad new on the basis that this is good news as the Fed cannot hike Interest Rates at this time. Thankfully we have not been short this market but I must confess I did not foresee such a violent rally in such a short time. This market is extremely overbought on a Daily Basis as shown by the McClellan Oscillator which closed last night at its highest level this year at +303. To be honest I cannot remember the last time when the MO closed over 300. Remember when the MO closed at -335 on August 24 the S&P was trading at 1870. The S&P has substantial overhead resistance from 2020/2050 and the big question is whether we are going to test the upper boundary of this resistance first before trading lower. For longer term traders I would look to scale in a short position in this region as I cannot see the market just break higher without a meaningful sell-off first especially with such a high reading in the MO. Today I will be a small seller from 2010/2016 with a 2020 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller in front of 2027 with a 2035 stop. I do not want to be long the S&P at this time.
EUR/USD
Unfortunately the Euro just missed my 1.1220 buy level by 15 points yesterday and I am still flat. As I have mentioned countless times over the past six months this Euro is going to break higher and to me it is only a matter of time before we trade back to the key resistance at 1.18/1.20. Today I will raise my buy level to 1.1250/1.1280 with a 1.1225 stop which is just below yesterday’s low print.
December Dollar Index
The Dollar plan worked well yesterday as the Dollar had a nice rally to my 95.70 sell level before subsequently selling off which enabled me to cover this position at my 95.30 T/P level as outlined earlier to my Platinum Members and I am now flat. Today I will again look to go short on any rally higher to 95.60/95.90 with a tight 96.20 stop.
December DAX
This morning the DAX spiked higher on the open to my 10120 sell level. I have decided to cover this position here at 10075 and go flat as I am already short the Dow. If the market rallies higher to 10150/10190 I will again look to go short with a 10230 stop. I still do not want to be long the DAX at this time.
December FTSE
Unfortunately I covered my long 6280 FTSE taken early yesterday morning way too early at 6300 and I am now flat. This is very frustrating when you see the FTSE trading over 6400 this morning. Thankfully we have not been short the market this week and today I will again look to buy the FTSE on any dip lower to 6310/6340 with a 6285 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
Incredibly the Dow has now rallied 1100 points since last Friday afternoon as every short position has just been creamed. I waited until very late in the US Trading session to go short the Dow which I did at the top of my sell range at 17030 only to be stopped out of this position at my 17080 stop. When I discovered how strong the McClellan Oscillator closed last night I decided to go short again in very small size at my stop level at 17080. I am going to leave a wider stop at 17210 as I want to try to hold onto this position as a more macro trade if possible.
December BUND
This morning the BUND has opened in the middle of my buy range at 155.90. I am still long and today I will raise my stop on this position to 155.65. If I am stopped out of this trade I will be a more aggressive buyer on any subsequent drop to 155.00/155.40 with a 154.75 stop.
Gold Rolling Contract
No Change as I am still a buyer on any dip lower to 1125/1135 with the same 1118 stop. Remember a break and close over 1160 will be very positive.
Silver Rolling Contract
No change a I am still long from earlier this week at 15.88 with the same 15.40 stop.
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