Stock markets across the globe had their worst week in 18 months as investors panicked on the weakness in the emerging markets, led by the devaluation of the Argentinian Peso. The Dow lost nearly 600 points over the week with the US markets closing down an average of 2% on very heavy volume. European markets were also hit hard with the German Dax and Spanish Ibex losing 2.5% and 3.75% respectively. Overnight this theme continued with the Nikkei falling 2.5%.
Gold advanced to a 2 month high, extending its longest run of weekly gains since September 2012 as the rout in emerging market assets fueled it as a safe haven.
So, after the rout in Stock markets all eyes will be on the two day FOMC Meeting starting tomorrow and the calls by some analysts for the Fed not to continue to taper it’s QE programme this week. It promises to be a fiery meeting with the two new hawks, namely Plosser and Fisher, joining as voting members this year. This will be Janet Yellen’s first Meeting as Chair and her first major challenge will be to generate enough inflation to meet the Fed’s 2% target.
European markets are opening slightly better this morning after the US futures markets turned around having been sold off when they opened last night.
This morning on the economic front we have the UK Nationwide House Price Index followed at 10.00 am by the very important German IFO Survey and Retail Sales. This is followed at 1.30 pm by the latest US New Home Sales and the Dallas Fed Manufacturing Index.
March S&P 500
Friday was another very bad day for the S&P with the market down nearly 70 handles since the close last Wednesday. For the second day in a row the S&P left another down Gap which runs from approximately 1816 to 1824, coming after the 1833.50 to 1840.50 Gap left on Thursday. It is very rare that we have two down Gaps in a row and shows how nervous this market is. After I posted on Friday the S&P was already trading below my 1817 buy level and soon after the US Markets opened it traded down to my next 1805 buy level. The market tried to stabilize here but quickly sold off again and I was stopped out of this position at 1799 and I am now flat. Friday was another great example how important it is to have stops in the market.
Last week’s sell off has seen the S&P break two key levels at 1810 and 1821 and it will take a lot of good news for the market to regain these prices. With the FOMC Meeting starting tomorrow and the market trading at the bottom of the Bollinger Band and Williams Index I still believe we will get a rally ahead of the announcement on Wednesday. Today I will be small buyer from 1780/1785 with a 1775 stop. If the market rallies ahead of Wednesday I will be a seller from 1808/1814 with a wider 1822 stop.
Euro/USD
Given the extent of the sell off in global stock markets I am very surprised at how weak the US Dollar is trading against the Euro. I have to respect the price action and this is telling me not to short the Euro at this time. After I posted on Friday it just missed my 1.3660 buy level before having a nice rally – I am still flat. I will leave my buy level the same at 1.3630/1.3660 in small size with a 1.3610 stop. I still do not want to be short the Euro at this time.
US Dollar Index
No change as I am still long the March contract at 80.50. Despite the strong Euro the Dollar Index is very stable and this why I prefer to be long Dollars via the Index rather than against the Euro. I will leave my stop the same at 79.80 as I am trying to establish a more macro trade in the Dollar.
March DAX
The 9585 support level that I mentioned on Friday did not last long as the Dax got slammed after I posted. I bought the market in small at 9600 and I was quickly stopped out of this position at 9560 and I am now flat. It then fell another 200 points after I was stopped out and emphasises the discipline of setting and sticking to your stops. The Dax has now broken some key levels to the down side and today I will be a small seller on any rally to 9460/9500 with a 9530 stop. My only interest in buying the Dax is on a dip to 9150/9200 with a 9125 stop.
March FTSE
After I posted on Friday the market quickly stopped me out of my 6725 long position from Wednesday at 6685 and I am still flat. As I previously mentioned, a break of 6685 would be bearish but I could never have seen a 180 point sell off after this level was broken. This morning the FTSE is trading at the bottom of the Bollinger Bnad but interestingly the Williams Index has started to turn higher. As I am expecting a rally in the US markets ahead of the FOMC on Wednesday I will be a small buyer from 6520/6540 with a 6490 stop which just below the lows made overnight. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow had another awful trading day on Friday and the market is now down nearly 800 points from its December 31st closing high. The sell off in the Dow has now done some serious technical damage to the market. Today the Dow is even more oversold and is trading at the bottom of the Bollinger Band. I still expect a rally ahead of Wednesday but after this rally I will be looking for levels to get short on a more macro basis.
After I posted on Friday the Dow traded down to my 16110 buy level before quickly stopping me out of this position at 16070. Last night when it reopened on Globex, and given how oversold it is trading, I bought the market in very small size at 15845. I am still long as I am looking for a rally into Wednesday and I will leave a breakeven stop on this position.
March BUND
The Bund worked well on Friday, as after I posted, it traded up to my 142.80 sell level before having a small sell off enabling me to cover this position at 142.50 and I am now flat. I still believe that at these levels the Bund is a sell on rallies and today I will be a small seller from 142.90/173.10 with a 143.25 stop.
Gold Rolling Contract
Gold continued to trade higher after I posted last Friday and is approaching the 100 Day Moving Average at 1275. It is trading at the top of the Bollinger Band and the Williams Index has started to to turn down. Today I will be a small seller from 1270/1280 with a 1288 stop. My only interest in buying Gold is still the same at 1235/1242 with a 1229 stop.
Silver Rolling Contract
Silver is trading much weaker than Gold and had a nasty sell off late in New York trading on Friday. It traded down to my 19.80 buy level and given the price action I am not going to risk to much on this trade and I will raise my stop to 19.50.
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