Whether it was despite the economic data (mostly disappointing versus expectations) or because of it (greater confidence in the Fed’s liquidity spigots staying wide open) US Equities came very close to some big psychological levels on Friday. The S&P almost hit 1800 at 1798.18 whilst the Dow got close to the 16000 mark at 15961.70. The VIX, the fear index measure of the market, dropped below 12.00 and is now down near its lowest level for the year.
The US Dollar ended the week on a soft note with the Euro/USD back at 1.3500 and US/JPY closing over 100. Despite the massive QE bond buying that has been going on all year US Economic data continues to disappoint. The New York Empire State Manufacturing Survey came in at -2.21 from +1.52 last month whilst Industrial Production was also on the soft side at -0.1% versus +0.2% expected. It is interesting that Import Prices are now down 2% for the year despite the weak US Dollar which is clearly not importing Inflation, implying that dis-inflationary forces are back on the rise.
This morning is quiet for economic releases with the UK releasing its latest Rightmove House Price Index. This is followed at 1.30 pm from the US by latest TIC data and the NAHB House Price Index. Later this afternoon Dudley and Plosser from the Fed are both due to speak on the economy.
December S&P 500
The S&P ground higher all day Friday in yet another very quiet trading session as the market continued to attack the 1800 level.The bearish contingent of market advisors has shrunk to its lowest level in 26 years as this stock market is now extremely over-bought and over-believed! The Daily Sentiment Index is now back at 90% bullish which is just below the 92% reading that we had last May before the market corrected nearly 10% in June. Over the past 6 years, since the October 2007 high, there have been six times when the DSI reading was slightly higher than 90% and each time we had at least a near term decline. This current reading should also lead to a decline.
The market just missed my 1797 sell level and I am still flat the S&P. Today I will leave my sell level the same at 1797/1802 with a 1805 stop. Given how overbought this market is I do not want to be long at this time as I am looking for a sell extreme to establish a short position.
Euro/USD
The Euro traded up to my 1.3490 sell level on Friday. I am still short with no huge confidence in this trade and I will leave my stop the same at 1.3520. If I am stopped out of this position I will be a more aggressive seller on any rally to 1.3550/1.3580 with a 1.3610 stop. I will still be a small buyer on any dip to 1.3330/1.3360 with a 1.3320 stop on any long position.
December DAX
The Dax worked well on Friday as the market traded up to my 9185 sell level and after a nice sell-off near the close I was able to cover this position at 9155 and I am now flat. The 9200 resistance level is key for the Dax going forward as a break and close over this level will be bullish. Today I will still be a small seller on any rally to 9185/9210 with a 9225 stop. I will leave my buy level the same at 9050/9080 with a 9025 stop.
December FTSE
The FTSE also worked well on Friday as shortly after I posted the market was trading at my 6690 sell level and after a small sell off I was able to cover this position at 6670 and I am now flat. Today I will be a small buyer from 6650/6665 with a tight 6635 stop. I will also raise my sell level to 6710/6730 with a 6740 stop.
Dow Rolling Contract
The Dow continues to make new high after new high in a relentless fashion. The market is overbought on a Daily,Weekly and now Monthly basis. The market traded up to my 15930. sell level on Friday and I am now short in small size with the same 15980 stop level. Given how overbought and over extended this market is I do not want to be long at this time.
December BUND
The Bund just missed my 141.30 buy level with a 141.36, low on Friday before having a nice rally and I am still flat. I still like the Bund but I am reluctant to chase this market higher and today I will be a small buyer from 141.30/141.50 with a 141.20 stop.
Gold Rolling Contract
Gold had a very quiet trading session on Friday. I am still flat and today I will raise my buy level to 1266/1275 with a 1263 stop.
Silver Rolling Contract
Silver just missed my 20.25 buy level on Friday. I still believe that Silver is a buy on dips and I am still looking for this market to put in a decent medium term bottom near current levels. Today I will raise my buy level to 20.25/20.50 with a 19.95 stop.
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