Nothing could be clearer than the current economic and policy divide between the US and Europe. As the Fed ponders rate lift-off and US Consumer sentiment hits its highest level for 11 years, the ECB last week has been putting together a QE plan that will get some sort of approval from Germany. According to weekend press reports, ECB President Dragi met with German Chancellor Merkel last week to present a compromise plan that would leave the responsibility and risk for buying Government Bonds with the National Central Banks. I am not sure how that works with the ECB running the show, but there you have it according to these Reuters reports.
There will no doubt be a lot of wire traffic after Thursday’s ECB Meeting about these details and such structural shortcomings but the total QE to be announced will get prime attention. The market is now looking for €1 trillion to impress and the likes of which had front and centre billing after last week’s SNB shock move. The Euro fell below 1.15 against the Dollar on Friday but is now trading around 1.1560.
On Friday, US data was again very positive. The UoM Consumer Sentiment Report for January jumped from 63.6 to 98.2. Any reading approaching 100 is super high. The Index has averaged 85.1 since 1978. Lower gasoline prices are boosting consumer’s real incomes and combined with an improving economy are doing the trick as far as US consumers are concerned thus increasing the prospect that rate lift-off from around mid-year remain in prospect. After a rocky start, European equities rallied late on Friday, while US equities also had a good session after a bumpy open helped by higher Oil.
The only data of note due today is from the UK which will release its CBI Trends Total Orders at 1.00 pm. The US markets are closed for the Martin Luther King Day Public Holiday.
March S&P 500
After the fireworks of the last three weeks, the S&P should have a relatively calm trading session today as the S&P futures market will close at 4.30 pm in observance of the Martin Luther King Public Holiday. The S&P had a good trading session on Friday with the market closing 1.1% higher and this has helped the McClellan Oscillator improve from -121 on Thursday to -7 on Friday. After the US released its very strong UoM Consumer Confidence Report on Friday afternoon, the S&P traded higher to my 2005 sell level before having a small sell-off which enabled me to cover this position at 1998 and I am now flat. The S&P has strong resistance between 2016/2022 and I will be a seller here with a 2027 stop. My only interest in buying the market is on a drop to 1982/1988 with a 1977 stop. It is going to be very hard for the S&P to make new highs at this time especially since we have had 6 Hindenburg Omen’s already in 2015.
Euro/USD
The Foreign Exchange markets are still reeling from the shock SNB decision to suspend its efforts from keeping the Swiss Franc from appreciating above 1.20 Euros, a policy that has been in place since September 2011 when interestingly Gold made its peak. The ‘peg’ between the two currencies was an attempt to keep exports competitive as more than half of Swiss exports go to EU Countries. To maintain that level the SNB bought a lot of Euros, which it devalued on Thursday, so its own assets plunged in value. By taking this drastic action the SNB took a huge loss in order to get out in front of the other World Central Bankers, who will be compelled by market forces to eventually follow suit especially if deflation continues.
The Euro was hit hard again on Friday with the market trading lower to my 1.1600 buy level before stopping me out of this trade at 1.1550 and I am now flat. An all-time record low level of optimism is attending the current waterfall decline. The Euro has a small ‘Open Gap’ from September 2003 which runs from 1.1212/1.1374 and may attract attention before the Euro eventually bottoms. Today I will again be a small buyer on any dip back to 1.1490/1.1520 with a 1.1475 stop which is just below last Friday’s low.
US Dollar Index
No change as I am still short at 92.80 with the same 93.40 stop.
March Dax
There is no stopping this massive up-move in the Dax with the market trading nearly 700 points higher since its low on Thursday. This morning the Dax is trading at the top of its Bollinger Band and Williams Index and is extremely overbought in comparison to the S&P and the Swiss equity market which is now 15% lower since the SNB’s shock move. The volatility at this time is incredible and I have to respect that the Dax made new highs when it broke the 10130 level. For this reason I will be a small buyer on any dip to 10120/10170 with a 10070 stop. Given how overbought we are trading at this time I will be a small seller on any further rally to 10320/10360 with a 10410 stop.
March FTSE
Thankfully I have not traded the FTSE over the last few days as every dip is being bought by the market, with Friday no exception especially when it broke the key 6450 resistance level. Today I will move my buy level higher to 6460/6490 with a 6435 stop. The price action is telling you not to be short the market at this time.
Dow Rolling Contract
The Dow plan worked out very well on Friday as shortly after I posted it traded lower to my 17260 buy level before subsequently having a huge 300 point rally which enabled me to cover this position at 17450 and I am now flat. With Thursday’s key ECB Meeting and QE announcement, it is very difficult to be short the equity markets at this time and today I will move my buy level higher in the Dow to 17320/17370 with a 17280 stop.
March BUND
The Bund just missed my sell level on Friday before trading lower and I am still flat. Today I will lower my sell level to 1.5780/1.5820 with a 1.5840 stop.
Gold Rolling Contract
Gold continues its huge 2015 up-move as yet again after a pro-longed period the Daily Sentiment Index reading worked again. It is interesting that when the SNB ‘pegged’ its currency to the Euro in September 2011, this was the peak in Gold before we had this massive sell-off. Now with the SNB reversing this decision last Thursday, could it be that Gold has finally bottomed?. I am still flat and today I will raise my buy level slightly to 1258/1265 with a 1248 stop.
Silver Rolling Contract
Finally my patience is beginning to pay dividends with Silver having traded over 18.00 on Friday. I am still long at 16.30 and today I will raise my stop on this position to 17.40.
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