Market wise, after what was shaping up to be a fairly subdued end to another tumultuous week, markets were enlivened soon the 4 pm London fixing by news that China had seized a US underwater drone in the South China Sea. This triggered a fairly short but sharp “risk off” episode in which US Bond Yields, equities and the US Dollar all fell back. Yields and the Dollar subsequently recovered though equities continued to drift lower with the S&P500 ended the day 0.18% lower (and 0.1% down on the week after closing at a new record high the previous Friday). The VIX finished 0.59 lower Friday but 0.45 up on the week at 12.2.
To mark my 1225th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 95 points on Friday and is now ahead by 1076 points for December having made 1971 points in November and 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started my Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
USD/JPY was the biggest G10 mover (down) on the China news, losing almost a big figure, so a timely reminder that the Japanese Yen remains the preeminent safe haven currency and that in 2017 it’s likely to be a case of ‘two steps forward, one step back’ if higher US yields alongside successful BoJ yield curve control do continue to drive the pair onwards and upwards. In Bonds, the US Treasury curve ended up in a mild bull steepener, 2s -2.1bps to 1.254% (+11.9bps on the week); 5s -2.3bps to 2.066% (+17.5bps on the week) and 10s -0.5% to 2.593% (+12.5bps).
Two Fed officials spoke last Friday afternoon: James Bullard says he now wants to see another rate rise next year (having previously held a ‘one and done ‘view in the months leading up to last week’s rate rise. He also wants to see the Fed start shrinking its balance sheet next year. And Richmond Fed President Jeffrey Lacker, a noted hawk but not a voter this year or next, says his guess is that the Fed will need to raise rates more than three times next year.
In FX, The BBDXY Dollar Index finished 0.03% lower but is 1.2% up on the week The NZD was the biggest G10 loser Friday, down 1.07% to 0.6963 and to its lowest closing level since 6th June. It’s also the biggest loser over the week, – 2.4%, closely followed by the yen, USD/JPY +2.3% on the week after falling by 0.21% Friday to finish at ¥117.93. AUD/USD lost 0.73% to 0.7304 (lowest since 2nd June) and is currently sitting at almost the same level it ended 2015 (0.7286) and almost slap bang in the middle of the effective 0.68-0.78 2016 year-to-date range.
In commodities, Gold caught a small safe haven bid to add $7.50 to $1135.3 but is still $24 down on the week. Oil can still do no wrong, WTI +$1.0 to $51.90 but is only 40 cents up on the week while Brent added $1.20 to $55.21 and is 88 cents up on the week. Iron ore was flat at 81.49 (and 17 cents down on the week).
Meanwhile in Australia, according to the AFR yesterday, Treasurer Scott Morrison has told cabinet’s powerful budget razor gang to prepare for the worst on the AAA rating, suggesting it will be lost barring some unexpected change that sways credit agencies at the last minute. The comments suggest that his appeals to the Agencies to ‘not let me (the AAA) down’ and have not so far made an impression with Standard and Poor’s expected to cut Australia AAA rating over the coming weeks by one notch.
This morning on the economic front we have German IFO Business Climate and Current Assessment/Expectations at 9.00 am. Next we have Euro-Zone Construction Output at 10.00 am and US Markit Services PMI at 2.45 pm. Finally at 3.00 pm we have the Bloomberg Nanos Confidence at 3.00 pm.
Later at 6.30 pm the Fed Chair Janet Yellen will speak on the Labour Market.
March S&P 500
Finally after a couple of close misses, my S&P plan worked well on Friday with the market hitting my 2250 buy level on the Chinese Drone news before rallying nicely on the Re-Open last night which enabled me to cover this position at my 2257 T/P level and I am now flat. Just like the DAX below, it is a waste of time and capital in trying to pick a top in the S&P despite its severely overbought condition. With the Dow too close to its 20,000 round number resistance level, it is only a matter of time before we break this level and this will pull the S&P higher. I still believe that the S&P will hit my 2300/2334 target level before we see if this turns out to be a major inflection point that finally leads to some sort of sell extreme. The US market did indeed register another Hindenburg Omen on Thursday but with the McClellan Oscillator closing with a positive 12 print on Friday there was no HO. Today I will again look to buy the S&P on any dip lower to 2247/2252 with a 2242 stop. If for some reason we see profit taking in the S&P this week and the market sells off, I will be a very aggressive buyer from 2214/2220 with a 2208 stop. I still do not want to be short the S&P at this time.
EUR/USD
My Euro plan worked well with the market hitting my 1.0410 buy level before rallying strongly. Unfortunately as I wanted to bank some points for Friday I covered this long position too early at 1.0422 and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.0380/1.0420 with a 1.0345 stop which is just below last Thursday’s low print. Given how oversold the Euro is trading I still do not want to be short the market at this time especially as the Euro is now trading at a near 14 year low. Meanwhile the Daily Sentiment Index closed at just 7% bulls which is near the low end of its historic range.
March Dollar Index
The Dollar traded higher to my 103.20 sell level but as I was already long the Euro I again covered this position too early at 103.08 and I am still flat. The DSI for the Dollar closed near all-time highs at 96% on Friday suggesting strongly that the Dollar is fast-approaching the terminal point of the current rally. Today I will again look to sell the Dollar on any rally higher to 102.90/103.30 with a 103.60 stop.
March DAX
Since the DAX broke its previous strong resistance at 10800/10850 the market has been in a clear bull trend with no sign of a top as yet. I am still flat the DAX and today I will now raise my buy level to 11260/11320 with a 11210 stop. Just like the S&P above there is no point in trying to pick a top in this market.
March FTSE
The FTSE again just missed my buy level before rallying strongly and I am still flat. Today I will continue to look to buy the market on any dip lower to 6870/6900 with a 6840 stop.
Dow Rolling Contract
Over the past 102 years of Dow history, there has only been five times that the 14 Day Relative Strength Index (RSI) has closed higher than last weeks 87 print. All of the previous highs have led to a sell-off before the market resumed its rally and I expect the same to happen this time especially as we are so close to the round number 20,000 resistance and the seasonally strongest time of the year for the US stock market. Today I will leave my sell level unchanged at 20050/20120 with a 20170 stop. I will also leave my more macro short interest sell level unchanged at 20250/20400 with the same 20520 stop. Given how overbought the Dow is trading and despite the fact that I expect the Dow to rally above 20,000 I do not want to be long the market at this time.
March BUND
The Bund again missed my buy level on Friday and I am still flat the market. Today I will raise my buy level slightly to 161.60/161.90 with a 161.25 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold just missed my buy level on Friday before having a small rally. On Friday the DSI for Gold closed at just 4% Gold bulls which is one percent below its 3% reading on November 5, 2014, which was the day before a closing low and two days before an intraday low that led to a 16% rally to late January 2015. To show how oversold Gold is trading the 21-day average of the DSI is now just at 9.76% which is the lowest in the 29 year history of this data. Traders are more bearish on a longer term basis now that they were in July 1999, when Gold was trading at $252.15, nearly $900 lower. I am not saying that we are going to rally strongly from here but the odds of a decent rally are increasing. Today I will raise my buy level to 1124/1134 with a 1115 stop but only in small size given the volatility.
Silver Rolling Contract
When the Dollar started to weaken on Friday I emailed my Platinum Members to buy Silver at 16.20. I am still long and I will now have a stop at 15.60 on this position.
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