Just over a week ago, President Trump promised a ‘phenomenal’ tax announcement in 2-3 weeks, so as the clock ticks down to some form of announcement, market inertia is set to reign. Certainly that was the impression conveyed by Friday’s offshore markets, though admittedly there was a distinct absence of data or events to get anyone’s pulses racing. US equities recouped early session losses to end Friday slightly in the black (all indices) and the US Dollar tracked equities higher despite a fall in US Bond Yields. I would also note that core Euro-Zone Bond Yields fell by more than Treasuries, hence spreads moved slightly in the dollar’s favour. So if there’s a message, it’s that the dollar is moving in sync. with US equities and that Bond spreads are currently more important than the absolute level of US Treasury yields (at least as far as the EUR/USD rate is concerned). On this, German Chancellor Merkel on Friday admitted – in the presence of US Vice President Mike pence and like her Finance Minister before her – that the level of the Euro was too low for Germany, but emphasized that it was out of Germany’s control to do anything about it. Merkel said the weak Euro was the result of ECB policy that was geared for the entire Euro-Zone.
To mark my 1275th 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 58 points on Friday and is now ahead by 1093 points for February having made 1734 points in January, 1351 in December, 1971 in November and 1582 in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.
10-year Treasury yields dropped from 2.448% to 2.416% but are still 0.8bp up on the week. 2s finished 1.4bps lower at 1.19% and 0.2bps down on the week, meaning no lasting impact from the more hawkish Fed speak from Yellen and co. last week. Indeed, market pricing for a 25- point hike at the March 14/15 meeting dropped to 40% on Friday from 45% and a mid-week peak of 52%.
10yr Bunds finished 4.7bps lower at 0.302% such that 10yr UST-Bund spread widened by 2.6bps on the week. Gilts lost 4.8bps with weak UK Retail Sales data to blame. Headline sales fell by 0.3% against an expected rise of 1.0%, and ex auto-fuel, fell by 0.2% against +0.7% expected. Annual sales volume growth is now down to 1.5% from 4.1% in November. Brexit related caution may finally be showing up after several months during which the incoming data has defied the Brexit naysayers.
The S&P 500 finished 0.17% higher (new record high) and is 1.5% up on the week. The Dow was just four points higher – also to a record high – and +1.7% on the week. European equities finished close to flat on Friday.
In FX, the BBDXY Index ended Friday 0.31% higher and the narrower DXY 0.51% up. On the week, BBDXY is +0.1%, as is DXY. For individual Dollar pairs, NOK just edged out Sterling for bottom spot in G10 despite little change in oil prices. GBP/USD fell by 0.62% to 1.2412 after those weak Retail Sales with SEK, EUR and CHF all down just over 0.5% (EUR/USD to 1.0616). AUD/USD and NZD/USD were both -0.39% to 0.7664 and 0.7182 respectively. USD/JPY bucked the trend, -0.35% to Y112.84, the absolute level of US Bond Yields more relevant for the JPY given ongoing BoJ ‘Yield Curve Control’ and hence spread compression whenever US Treasury yields dip.
In commodities, gold lost $2.40 to $1,237.60, WTI oil was flat at $53.40 and Brent +$0.20 to $55.81. The LMEX index lost 0.76% but iron ore gained 30 cents to $90.37.
This morning on the economic front we already had the release of German PPI which came in strong at +0.7% versus +0.3% expected. At 11.00 am we have UK CBI Trends Total Orders/Selling Prices. Finally at 3.00 pm we have Euro-Zone Consumer Confidence. The US stock markets are closed today in observance of Washington’s Birthday, otherwise know as Presidents’ Day, thus we have no US economic data due.
March S&P 500
For the second consecutive trading session the S&P just missed my 2332 buy level with the same 2336 low print before the market finally stabilised and rallied into the close. As I did not fancy having a position over the weekend I moved my sell range in the S&P higher to 2350/2354, in an email to my Platinum Members and this morning the S&P is trading higher after the Chinese stock market rallied 1.5% which was its biggest daily gain in six months. I have outlined over the past week how overvalued the US stock market is and this has increased with the Daily Sentiment Index closing at a three year high with a reading of 91% bulls. The CNN Fear & Greed Index remains at preposterously over-extended heights having closed on Friday at 80, which is the level that the creators of the Index refer to as ”Extreme Greed”. Purchases made of equities when this Index is this high are usually regretted, sooner rather than later. That does not mean that one cannot buy equities here, or that one cannot add to current long positions, but it does mean that ownership at these rather lofty levels has to be accompanied by some sort of hedging mechanism. That is, stops have to be brought up closely behind those positions, or Futures need to be sold against them or ”Puts” (options) bought to protect the downside. To add weight to the above argument, the ”Shiller P/E Ratio” is now at its present lofty level only twice before in the course of the past 100 years and each time the stock market has collapsed thereafter. However the difficult stance here is that stocks continued to advance and in a powerful way for quite some many months more before turning sharply lower, hence the ”markets can remain illogical longer than I remain solvent” comment in Friday’s commentary. As always we wait for a sell extreme that lasts for more than a few days before putting on a more aggressive short position. This morning with the S&P trading higher as mentioned above I have gone short in small size at 2354 with a 2359 stop. Remember due to the US Cash Stock markets being closed today that the Futures market will close at 4.30 pm and re-open at 11.00 pm this evening.
EUR/USD
Very late in Friday’s trading session, the Euro traded lower to my 1.0610 buy level and as I wanted to be flat ahead of the long weekend in the US, I emailed my Platinum Members to exit this position at 1.0614 and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.0560/1.0590 with a 1.0525 stop. Despite the negative price action I still do not want to be short the Euro at this time.
March Dollar Index
No change as I am still a seller on any rally higher to 101.30/101.70 with the same 102.05 stop. Unfortunately the Dollar just missed my 100.20 buy level on Friday before rallying into the New York close and today I will raise my buy level slightly to 99.95/100.35 with a 99.60 stop.
March DAX
On the back of the strong finish to the Chinese stock market the DAX is again trading above 11800. However we need to break and close over 11850 for this rally to extend. So far this level has been rejected three times but you got to fancy that if we break it on this run that we will finally see follow through to my 11940 and 12030 target levels over the coming days. Today I will now raise my buy level higher to 11710/11760 with a 11665 stop.
March FTSE
My FTSE plan worked well on Friday with the market trading higher to my 7265 sell level after I posted, before selling off mid-morning. I used this sell-off to cover my short position at my revised 7243 T/P level and I am now flat. This morning the FTSE is trading higher as it looks to try and break the January all-time high at 7292. The weakness in Sterling is also helping the FTSE at this time. Today I will again look to sell the market on any further rally to 7290/7330 with a 7360 tight stop. Given how over extended the FTSE is trading, I do not want to be short the market at this time.
Dow Rolling Contract
Earlier this morning the Dow traded higher to my 20680 sell level with a 20695 high print. As I am already short the Dow I emailed my Platinum Members to exit any short Dow position at my revised 20657 T/P level and I am now flat. The really interesting take from last Friday’s trading session was the fact the McClellan Oscillator again closed weak and only barely in positive territory with a +6 print. This is very worrying when you see the stock markets making new highs almost every day and may be the first warning shot that I am looking for as mentioned in detail under my S&P Commentary. Today I will again look to sell the Dow on any rally higher to 20730/20790 with a 20845 stop. Given how over bought and over extended the Dow is trading I still do not want to be long the market at this time.
March BUND
For the second consecutive trading session the Bund rallied strongly soon after I posted my Daily Commentary and I am still flat. Today if this rally continues I will look to sell the Bund from 164.70/165.05 with a 165.35 stop. My only interest in buying the Bund is on a dip lower to 163.45/163.80 with a 163.15 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1217/1224 with a 1210 stop.
Silver Rolling Contract
As I wanted to be flat ahead of the weekend I emailed my Platinum Members late on Friday to exit their long 17.95 Silver position for a small gain at 18.03 and I am now flat. Today I will again look to buy the market on any dip lower to 17.50/17.80 with a 17.15 stop. Silver has very strong support at 17.27 and I would expect this level to hold any initial test.
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