Following the savaging meted out to Global Stock markets across the board on Friday, markets are stable to higher this morning after yesterday’s news of a 1% cut to China’s Reserve Requirement Ratio, to 18.5% which is effective today. This is double the size of the previous cut in February and only the second time the RRR has been lowered by this amount in one fell swoop with the only other time being during the Global Financial Crisis.
Also to note this morning, at the weekend ECB President Mario Dragi, in comments reminiscent of his famous ‘Whatever It Takes’ speech to save the Euro remarks of July 2012, warned markets that it was ‘pointless’ to go short on the single currency – challenging anyone who disagreed to ‘do it’. In the context of the ECB’s ongoing Euro 60bn per month QE programme, and regardless of one’s views on the likelihood of early Greek debt default and possible Greek exit I suspect there will still be plenty willing to try. However over the weekend at the G20 Meeting there was further evidence of rising angst at US Dollar appreciation to date which drew a reference in the post meeting statement which noted ‘there are important challenges including volatility in exchange rates’. It went on to say that Countries can use Capital Controls as appropriate to deal with large and volatile flows in cross border flows which is an obvious reference to Emerging Market capital flight linked to the start of Fed Policy normalisation, already evident in Q4 2014.
Stocks swooned on Friday, in Europe more than the US where the S&P 500 lost 1.13% for a 1% fall on the week. The German DAX, the biggest gainer YTD, gave back 2.58% to close down 5.5% on the week which is its biggest weekly loss since 2011. A multiple of excuses were on offer for the sharp fall.
1 A higher than expected US core CPI reading of 1.8% up from 1.7% in February.
2 Heightened concerns over a Greek debt default with few if any comforting sounds from the G20 in Washington over the weekend.
3 Rule changes that would make it easier for Fund Managers to lend out Chinese shares to short sellers.
4 News that the Department of Justice was close to recommending against the proposed $45bn tie-up between Time Warner and Comcast.
5 Amex missing its revenue estimates by blaming the transaction effects of Dollar strength.
Today is a very light day for economic data. At 12.30 pm we have US Chicago Fed National Activity Index. This is followed by UK CBI Trends Total Orders and Business Optimism at 3.00 pm.
June S&P 500
The S&P plan did not work out so well on Friday but thankfully I had a tight stop as this saved me a lot of money. Soon after I posted the DAX went into free-fall which enabled me to go long the S&P at 2091 before very quickly stopping me out of this position at 2086 and I am now flat. As I mentioned on Friday a break and close below 2090 would be short term bearish and this certainly was the case with the move lower to 2064 before the market rebounded slightly into the New York close. However this morning the S&P is back trading at 2088 after the rate cut in China yesterday. It is amazing that every sell-off in the US is met by aggressive buying. I still believe that this market is an accident in waiting especially given the weaker than expected economic data so far released this year. Today I will be a small seller on any further rally to 2090/2095 with a 2101 stop. If I am taken short and subsequently stopped out of this position I will use my ‘5 Handle Rule’ to go short again with a stop above whatever new high is printed.. Despite the positive price action this morning I do not want to be long the S&P at this time.
EUR/USD
My long 1.0760 Euro position worked out very well on Friday as shortly after the market retested my buy level the Euro has a nice rally which enabled me to cover this position at 1.0820 and I am now flat. As I mentioned on Friday the fact that the Euro closed over 1.0750 is short-term positive but to really get bullish of the Euro we need to see the market close over the double top resistance at 1.1050. The fact that ECB President Dragi said over the weekend not to short the Euro has got to be significant and for this reason I will again be a small buyer on any further dip to 1.0730/1.0760 with a tight 1.0695 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 1.0650 with a 1.0590 stop.
June US Dollar Index
Shortly after lunch on Friday the Dollar traded higher to my 97.90 sell level. I am still short and today I will lower my stop on this position to 98.20. If I am stopped out of this trade I will be a more aggressive seller in front of 98.50 with a 98.90 stop. Given the extreme sentiment towards the Dollar I do not want to be long the Dollar at this time.
June DAX
My worries about been long the DAX certainly proved to be correct with the DAX falling nearly 400 points after I posted on Friday but unfortunately the market just missed my sell level by 20 points before have this aggressive sell-off and I am still flat. If I am correct in thinking the Euro is going to have a decent rally over the coming weeks then it will be very difficult for the DAX to rally. This morning the DAX is trying to rally, however given my concerns for this market I will lower my sell level to 11860/11910 with an 11950 stop. My only interest in buying the DAX over the coming days is from 11480/11530 where I will be a reasonably aggressive buyer with a wider 11430 stop.
June FTSE
The FTSE plan worked out well on Friday as just as I posted the FTSE was trading at my 7050 sell level before having a nice sell-off which enabled me to cover this position at 7000 and I am now flat. I still believe the FTSE will run into trouble ahead of the UK Election next month and today I will again be a small seller on any further rally to 7045/7075 with a 7105 stop.
Dow Rolling Contract
I am still flat the Dow as the market did not reach my 18080 sell level after I posted on Friday. With McClellan Oscillator finally closing in negative territory on Friday and the fact that we still have the three confirmed Hindenburg Omen’s on the clock I am going to lower my sell level today to 18020/18070 with a 18110 stop. There is no doubt that the strength of the US Dollar will have an impact on the earnings of some of the key Dow stocks as they release their results over the next two weeks.
June BUND
No change as I am still short in small size at 160.35. I will still look to add to this short position on any rally to 160.75 with a 161.10 stop on both positions.
Gold Rolling Contract
My long 1199 Gold position worked out well on Friday as Gold had a nice rally which enabled me to cover this position at 1208 and I am now flat. Today I will again be a small buyer on any dip lower to 1194/1201 with the same 1189 stop.
Silver Rolling Contract
No change as I am still long from earlier this month a 16.40 with the same 15.90 stop. I am very surprised about how stable and quiet the Silver market is especially when you see the volatility in the other Commodity markets.
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