Global Equity markets were again largely sidelined on Friday in comparison to the price action in Currency and Bond markets. The US Dollar was stronger across the board with the US Dollar Index rising 0.4% whilst 10 Year Treasuries rose 8.5 basis points to 1.9%, the highest level since March 26th. US Dollar strength continued to weaken commodity prices, although the likes of Gold and Oil finished well back from their intra-day lows. Gold ended down $10 at $1448 having been as low as $1420 whilst Oil ended basically flat having been nearly down $3 at one stage. Contributing to Friday’s afternoon session price action was a speech from Fed Chairman Bernanke warning of excessive risk taking. In particular, Bernanke said the Fed was watching closely for evidence of ‘reaching for yield’ and other forms of risk taking. There are shades of Bernanke’s predecessor Alan Greenspan’s famous ‘Irrational Exuberance’ remarks made in late 1996 in reference to the US Stock markets – it was more than three years later (early 2000) before the ‘dotcom’ bubble finally burst. Also boosting Bond Yield and helping the US Dollar was talk of a Wall Street Journal article by Fed watcher Jon Hilsenrath, subsequently validated, suggesting that the Fed has mapped out a strategy for winding down the $85 billion a month bond buying programme. Hilsenrath says the wind-down from QE will be variable with no hints in his piece on possible timing. He also re-iterated a key point from the latest FOMC Minutes, namely that the current QE programme could be expanded before it contracts.
Today is very quiet on the economic front. This morning, Italy has a Bond Auction whilst at 1.30 pm we get the latest Retail Sales from the US, along with Business Inventories.
June S&P 500
Friday was another quiet day for the S&P as the market continued to consolidate the gains made the previous week. It has also left the Gap from the previous Friday for over a week without been filled. The Daily Sentiment Index that I was talking about last week closed at a new high at 92%. Traders have gone from 92% bearish in the S&P from November 14th 2012 (the S&P bottomed on November 16th) to 92% bullish last Friday and this is why I am looking for a sell off and I am reluctant to chase the market higher from here. After I posted on Friday the market traded in to my sell level at 1628 and I took a gain at 1622 before we got the late rally and I am now flat. Today I will still look to go short from 1627/1630 with the same 1633 stop. Just like I said on Friday if I get short and I am subsequently stopped out I will use any subsequent 5 handle sell off to go short one more time with a stop at whatever high is put in. I will also look to buy the market on any dip to 1600/1605 in small size with a 1593 stop.
Euro/USD
The Euro dropped down to my 1.2960 buy level on Friday afternoon. I have taken profit at 1.2990 on this position and I am now flat. This 1.2950 is key support and a break and close below here will be very bearish. I do not want to chase the Euro lower from here and I will use any rally to 1.3050/1.3080 to get short with a 1.3105 stop. I have a feeling this Euro is going to break lower and I do not want to be long at this time.
June DAX
The Dax just missed my 8360 sell level on Friday before trading lower. Today I will use any rally to 8320/8340 to go short with a 8370 stop which is just above Fridays high. I will also be a small buyer on any dip to 8210/8230 with a 8195 stop. The Dax needs to break and close below 8200 in order for the bears to return.
June FTSE
The FTSE is still trading in a narrow range everyday and as a result I have to take smaller profits when they happen. The FTSE sold off after the New York open and I was able to take profit at 6565 on my 6595 short position and I am now flat. Today I will still look to go short on any rally to 6595/6615 with a 6635 stop. I do not want to be long the FTSE at this time.
June BUND
The Bund got hammered on Friday and is bouncing off important support at 144.40 this morning. Today I will be a buyer on any further dip to 144.30/144.50 with a 144.10 stop. My only interest in going short is if we rally back to 145.20/145.50 with a 145.60 stop.
Gold Rolling Contract
Unfortunately I cut my short Gold position to early on Thursday before Gold fell $40. Today I will look to buy Gold on any further dip to 1415/1425 with a 1405 stop. I will also look to sell Gold in front of 1460 with a 1472 stop.
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