Another quiet end to a quiet week but with the U.S. Dollar grinding out small gains despite further slippage in US Bond yields (10s -6bps) and a fairly flat U.S. stock market (albeit new record closing highs for the S&P and the Dow). Core Eurozone and UK Gilt yields also fell, with the 2yr German yield making a new record low of – 0.946% (-4bps), 10yr Bunds off 5bps and 10yr gilts down 8bps. Sterling was Friday’s FX underperformer, followed by Australian Dollar. Notwithstanding the drop in Treasury yields, market implied probabilities for a March Fed hike rose, to 40% from 38% using Fed Funds or to 47.8% from 46.3% using OIS (Bloomberg data). The mid-week comments from the Fed’s Patrick Harker and Robert Kaplan, both seemingly supportive of a March hike, thus continue to resonate – just not in the bond market where Steve Mnuchin’s comments implying limited likelihood of early fiscal policy changes is the bigger influence.
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 28 points on Friday and is now ahead by 1419 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.
In stocks, the S&P500 finished 0.15% higher, the index weighed down by the energy and financial sectors (- 0.89% and -0.75% respectively) but supported by gains for all other sectors led by a 1.39% gain for utilities. The prospect of later than hoped for changes to fiscal and regulatory policy looks do look to be restraining upward progress, along with lower oil prices and which follows the mid-week comments from Qatar’s Oil Minister suggesting that non-OPEC producers have so far only scaled back production by half what they promised last year. The Dow ended just 0.05% higher and the NASDAQ 0.17%. The VIX remains close to the range floor, -0.24 points to 11.47 and virtually unchanged on the week.
Treasuries ended Friday with 2s -3.9bps and -4.5bps on the week, 5s down 5.4bps to 1.805% (-9.7bps on the week) 10s -6.0bps to 2.313%, off 10.3bps and to their lowest closing level since November 29th.
In FX, the BBDXY Index ended Friday 0.14% higher and the DXY a lesser 0.04% due largely to strength in the JPY which has a bigger weight.
For individual dollar pairs, GBP fared worse, -0.75% to $1.2462 followed by the AUD, -0.51% to 0.7676. EUR/USD -0.18% to 1.0563 and USD/JPY -0.44% to Y112.12, making it the strongest currency of the past 24 hours and indeed the week. CAD also finished stronger, USD/CAD -0.11% to 1.3105, strong CPI data trumping weaker oil.
In commodities, Gold gained $6.7 to $1,256.9 ($19.3 on the week). WTI oil was -$0.50 to $53.99 (+$0.59 on the week) and Brent -$0.60 to $55.99 (+$0.18 on the week). The LMEX index added 1.3% (copper, zinc, nickel and aluminium all up) while iron ore lost $0.80 to $90.50 but is little changed on the week (+$0.13).
We did not have a lot of economic data on Friday. Canada January CPI +0.9% m/m (+0.4%E, -0.2%P) pushing Y/Y up to 2.1% from 1.5% (1.6%E) though all three core CPI measures remain sub- 2%. US New Home Sales +3.7% vs. 6.4% expected though December was revised up to -7.0% from -10.4%. The final University of Michigan Consumer Sentiment printed 96.3 up from the 95.7 preliminary read and an expected 96.0. This along with Trump announcing ”Huge Tax cuts soon” helped turned the stock market around.
This morning on the economic front we have Euro-Zone Business Climate Indicator at 10.00 am. This is followed by the highly volatile US Durable Goods Orders at 1.30 pm. Finally we have US Pending Home Sales and the Dallas Fed Manufacturing Activity Index at 3.00 pm and 3.30 pm respectively.
Later at 4.00 pm the Fed’s Kaplan speaks at an Economic Conference in Oklahoma at 4.00 pm.
March S&P 500
My S&P plan worked really well with the market hitting my 2350 buy level before incredibly trading all the way to my 2366 initial sell level just on the Chicago close. This rally enabled me to cover this long position at my 2356 T/P level. After my sell level was triggered I emailed my Platinum Members to exit this position at 2365 as I did not want to have a short position over the weekend and I am now flat. There is no doubt that we have a massive day ahead of us tomorrow when President Trump finally announces his proposed Tax Cuts to Congress. The big question is whether all of this good news is priced into the market. The S&P has not had a 1% fall since before Trump was elected President and this is the longest running streak for this indicator. As I have said one of the signals that I am looking for is a Downside Key Day Reversal and this may well occur after an initial rally after the Tax Cut proposal before the market reverses and trades lower. Given how overbought and over extended this market is I am tempted to just go short but this will be foolish until we get a sell extreme or the above mentioned KDR. Today I will again look to sell the S&P on any further rally higher to 2374/2380 with a 2386 wider stop. Friday’s sell-off more or less closed last week’s ”Open Gap” and today I will again look to buy the S&P on any dip lower to 2352/2358 with a 2347 stop which is just below last Friday’s low print.
EUR/USD
Unfortunately I lowered my buy level in the Euro late Friday and thus my 1.0555 buy level was not triggered for my Platinum Members. However for those members who did buy the Euro overnight at this price level then you are sitting on a nice gain this morning which I would just take now and go flat. Today I will again look to buy the Euro on any dip lower to 1.0520/1.0550 with a 1.0485 stop which is just below last week’s 1.0493 low print.
March Dollar Index
Unfortunately the Dollar just missed my initial 101.25 sell level and I am still flat. Today I will raise my sell level slightly to 101.40/101.75 with a 102.05 stop. Remember the Dollar needs to break 102.45 for me to turn bullish.
March DAX
My DAX plan did not work well on Friday as I got slammed on the volatility. Thankfully, I know most members do not trade this market and if this was the case then you would have had an excellent trading day. The DAX hit my 11830 average buy level before getting crushed to a 11720 low print and this sell-off stopped me out of my position at 11760 and I am now flat. What makes this loss even more infuriating is the late turn around in the DAX with the market trading at 11855 this morning. Today I will again look to buy the DAX on any dip lower to 11740/11800 with a 11690 tight stop. Remember that given the Vegas type nature of the DAX that I only trade this market in very small size. The fact that the DAX is back trading above 11800, I do not want to be short the market at this time.
March FTSE
The FTSE just missed my initial sell level by 1 point overnight before trading lower and I am still flat. Today I will raise my sell level slightly to 7285/7315 with a tight 7335 stop. Given how overbought and overextended the FTSE is trading I do not want to be long the market at this time.
Dow Rolling Contract
Yet again the Dow closed higher on Friday with another all-time new closing high. This is the eleventh consecutive higher close which is the longest such stretch in 30 years. The first 13 trading sessions of 1987 saw the Dow close higher every day, with the streak finally ending on January 20, 1987. However as we know from history the stock market did not crash until the following October. I am not looking for a crash here but I am looking for a decent correction before we make new highs ahead of a possible crash late this year or early 2018. It is incredible that this recent streak of 11 higher closes has been accompanied by a negative NYSE a/d ratio as there were more stocks that closed down than up. Also in five of the last six trading days has occurred with a greater percentage of NYSE volume on the downside versus the upside. On top of all of this the McClellan Oscillator just closed barely in positive territory with a +7 reading on Friday night. There is no doubt that optimism towards stocks is at the upper echelon of its historic range. However until we get a KDR or sell extreme that lasts for more than a few days it is so difficult to be short apart from the hit and run scenario that we have been playing over the past few weeks. As I mentioned it is possible to measure a target of 20950 on this run and we are only just 100 points away from this target level. Today I will raise my sell level to 20870/20940 with a 20110 wider stop. I will scale into any short position in this sell range thus the wider stop.
March BUND
The Bund hit my initial sell level at 166.10 before trading higher to my revised second sell level at 166.40 just before the close on Friday and after an initial sell-off this morning I covered this position for a small gain at 166.15 and I am now flat. The Bund is extremely overbought with the low Yield making no sense given the recent pick up in Euro-Zone and German growth over the past two months. However given the ongoing worsening political situation investors are prepared to find safety in the Bund. With the Bund trading at the top of its Daily Bollinger Band and Williams Index I will again look to sell the market on any further rally to 166.35/166.70 with a tight 166.95 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1238/1245 with a 1232 tight stop.
Silver Rolling Contract
Silver rallied on Friday and this move higher enabled me to cover my latest long 18.12 position at my revised 18.30 T/P level. Earlier this morning I bought Silver again at 18.38 with a 17.90 stop.
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