Somewhat remarkably, the UK stock market recovered smartly from its opening crunch with the FTSE closing down -3.1% having been down 8.7% after the market opened despite falls of 20% in the share prices of Lloyds, Barclays and RBS. GBP/USD which had tested 1.32 from its 1.50 trading price following the initial exit poll shortly after the polling stations closed recovered to trade at 1.40 before closing at 1.3679 for a fall of 8.05%. This morning sterling and the FTSE are opening lower following the announcement that after the close of markets on Friday, Moody’s formally put the UK Sovereign on negative ratings watch. Though S&P and Fitch have as yet done nothing formally, both said that Friday’s news is credit negative. S&P currently has the UK on AAA, with Fitch and Moody’s both one notch below.
To mark my 1100th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 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 please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 645 points on Friday following a 610 point gain on Thursday to leave June with a gain so far of 2405 points. The previous three months saw gains of 1532, 2175 and 2265 points respectively. Since I started this service over 12 months ago it has averaged a monthly gain of over 2200 points.
The biggest stock index losses on Friday were reserved for Continental Europe, where an 8.6% loss for the Eurostoxx 50 was led by Italy’s MIB and Spain’s IBEX which both closed down 12.5% and 12.4% respectively. The latter came in front of yesterday’s Spanish General Election where incoming results suggest another inconclusive outcome.
The S&P 500 lost 2.75% in the opening minutes of cash market trading before closing a large chunk of its ‘Open Gap’ before getting slammed in the last hour of trading to finish with a net loss of 3.60%. The VIX ended up 50% on its Thursday closing level at 25.76, close to intra-day highs and at its highest level since 11 February. Yet in the context of Friday’s events, the surprise perhaps is that risk aversion indicators are not even higher. That can yet transpire.
In Bonds, 10 Year Treasuries finished up 16bp from their 1.40% London opening low price while UK Gilts and German Bunds closed 28.7bps and 14bps lower at 1.0890% and -0.05% respectively with the Bund at one stage trading as low as -0.17%. Pricing for a Fed Rate hike this year is now gone with only one 0.25% hike now priced in for 2017.
In FX, GBP/USD finished in New York -8.05%, EUR/USD -2.35% at 1.1110, and USD/JPY -3.71% to 102.20. The SNB earlier confirmed intervention after EUR/CHF had traded sub 1.0650. Both the EUR/USD and Cable ended with massive downside Key Week Reversals.
In Commodities both WTI and Brent closed $2.5 lower while as mentioned in Friday’s commentary Gold exploded $100 to a $1358 high before closing at $1320.
Data published on Friday, albeit ignored, showed US Durable Goods Orders at -2.2% versus +3.3% expected, while Final University of Michigan Consumer Sentiment came in at 93.5 versus 94.1 expected.
Earlier this morning UK Finance Minister was speaking ahead of the UK Markets opening. He said the UK was ready to confront the future and that the UK did not need an emergency Budget at this time.
This morning on the economic front we have Euro-Zone M3 Money Supply at 9.00 am. This is followed at 1.30 pm by US Trade Balance. Finally we have US Markit Services/Composite PMI and the Dallas Fed Manufacturing Activity Index at 2.45 pm and 3.30 pm respectively.
September S&P 500
Whatever about the wider implications of ‘Brexit’ this is the best news that can have happened for trading in many a year as volatility is now back across all asset classes. Yes there will be day’s when we will loose money but now we have two-way trading again which we have not had for many a year. My long 2019 S&P position taken early Friday morning worked very well with the market hitting my 2040 T/P level shortly after I posted. The volatility in both directions on Friday was incredible with the S&P opening in my buy range last night which saw me buy the market at 11.15 pm at 2005 as outlined by email to my Platinum Members before the market had a nice rally so far to 2022 this morning which enabled me to cover this position at my 2015 T/P level and I am now flat. The big question is whether the bull market is over and that we are now in a position to go short for more than a few hours or are the Central Banks going to intervene again. There is no doubt that most people did not expect the UK to vote to leave the EU and have got badly caught on this move. Today I will look to sell the S&P on any move higher to 2032/2040 with a 2052 wider stop. You are going to see much higher volatility as shown by the VIX and means you will have to trade in smaller size with wider stops. I will also look to buy the market on any dip lower to 1985/1995 with a 1978 stop.
EUR/USD
My long 1.1050 Euro position worked well with the Euro trading at my revised 1.1140 T/P level shortly after I posted. After lunch the Euro traded lower to my average buy level at 1.1075 before rallying to over 1.1170 which enabled me to cover this position also at a revised T/P level at 1.1100 and I am now flat. Friday’s huge move lower led to a massive downside Key Week Reversal and even though I have been bullish of the Euro for the last 18 months I have to respect this key technical development. Remember the last Key Week Reversal’s were to the upside last December from the 1.05 level and again in March from the 1.08 level. Both of these reversals led to huge moves to the upside and it is why I have to respect what happened on Friday. The odds have now increased that we will at least test the 1.08 level over the coming days and for this reason I will be a small seller on any rally higher to 1.1120/1.1170 with a 1.1210 stop.
September Dollar Index
The fact that we had such a reversal in the Dollar on Friday means that I still do not have an edge in this market at this time and I would prefer to wait a couple of days to see how the market performs before making my next recommendation preferring instead to concentrate on the EUR/USD.
September DAX
It took a while but finally the DAX traded lower to my 9430 buy level before having a nice 100 point rally which enabled me to cover this position at my 9520 aggressive target and I am now flat. Today given how oversold the market is after its incredible 1200 point fall on Friday will again look to buy the market on any dip lower to 9320/9380 with a 9260 stop. Despite the negative price action I do not want to be short the DAX at this time.
September FTSE
I am glad that I stayed out of the FTSE on Friday as I wanted to see the price action. It is interesting that the FTSE outperformed the other European Indices and probably a lot of this outperformance is to do with the much weaker Sterling as this will give them a more competitive edge. I would not get bearish on the UK stock market and today I will look to buy the market on any dip lower to 5960/6000 with a 5925 stop.
Dow Rolling Contract
My Dow plan worked well with the Dow trading lower to my 17420 buy level before having a quick rally which enabled me to cover this position at my 17500 T/P level and I am now flat. Today I will again look to buy the Dow on any further dip lower to 17210/17280 with a tight 17150 stop. I still do not want to sell the Dow preferring instead to sell the S&P as mentioned above.
September BUND
My Bund plan also worked well with the Bund trading higher to my average 166.50 sell level shortly after I posted on Friday. Subsequently the Bund sold off and this enabled me to cover this position at my 166.00 T/P level and I am now flat. With the Bund trying to rally again this morning I will now look to sell the market on any further move higher to 166.55/166.85 with a 167.25 stop.
Gold Rolling Contract
I am still flat Gold and today I will look to buy the market on any dip lower to 1291/1299 with a 1283 tight stop.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 17.10/17.50 with a 16.65 stop.
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