As the US Budget cuts begin to cut in and progressively have their impact from the start of the month, the US Economy is showing signs of having re-accelerated in the first part of this year. The US ISM Manufacturing report for February showed that manufacturing growth had picked up while the Personal Income and Spending Report for January showed that the underlying trend in positive consumer spending persisted in the month, despite the tax hikes. Real consumer spending is 2.8% higher than its average in the December quarter, up 0.1% on the month. The US Dollar posted strong gains across the board with GBP/USD falling below 1.50 for the first time since July 2010 following a slump in the UK Manufacturing PMI which also weighed on EUR/USD. Meanwhile China’s PMIs in February were softer, opening up the prospect that growth may have eased a touch.
This morning on the economic front we have UK PMI Construction Index which will be closely watched after Friday’s horrendous No’s. We also have Euro-Zone PMI at 10.00 am followed in the US by the ISM for New York. Later this afternoon, in Washington, former Fed Chairman Volcker and Yellan of this Fed are due to speak.
March S&P 500
This past week has been one of the wildest for S&P trading that I have seen for a long time. The VIX rose 35% last Monday alone and as a result volatility has increased substantially. After last Monday’s 48 handle fall in the S&P who would have bet that it would have closed higher for the week and has now closed up in 7 of the last 8 weeks. With this increase in volatility we have to reduce our stake size and widen our stops otherwise we are going to get whip-sawed as I did on Friday. The market traded down to my 1510 buy level before stopping me out at 1504 when a very large sell programme hit the market (over 85,000 E-Mini S&P’s were sold) just after the open. The market, having made a new low below 1500 then rallied to trade up to 1519. Given the increase in the VIX, I think the market is trying to put in some sort of short term top. This morning I am a small seller on any rally to 1512/1520 with a 1525 stop. I am only interested in buying the market in front of 1490 with a 1483 stop which is just below last Tuesday’s low.
EURO/USD
Just like the S&P above, I had too tight a stop on my 1.3000 long Euro position and I got stopped out at 1.2970 before the market rallied back to the 1.3040 level and I am still flat. The Euro is very oversold and the next major support is the 1.2920/1.2950 area. I will be an aggressive buyer if we dip down to this level with a 1.2875 stop. A break and close below 1.2875 will probably see the Euro trade down to 1.2600/1.2650 area before attempting another rally. If the Euro rallies from here I will be a seller from 1.3080/1.3110 with a 1.3140 stop.
GBP/USD (Cable)
Thankfully I was late posting the blog on Friday as Cable had already broken down after the miserable PMI data from the UK had been released. The market quickly broke my 1.5120 support and briefly traded under 1.5000. Cable is very oversold and at the bottom of its Bollinger Band and Williams Index – this morning I have bought the market at 1.5030 in very small with a 1.4980 stop which is just below Friday’s low.
March DAX
Just like Cable above, the Dax had already broken down before I posted on Friday. The Dax is now trading in ‘no mans land’ and I am only interested in buying the market on any dip to 7540/7570 with a tight 7520 stop which is just below the low made for the year.
Gold Rolling Contract
Gold continues to trade heavy and I still want to buy the market on any dip to 1530/1540 with a 1518 stop.
Silver Rolling Spot
I have not written about Silver since before Christmas but it continues to under-perform Gold and I have a small order to buy Silver on any dip 27.50/27.80 with a 27.20 stop.
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