The US Employment Reports were the only data of note on Friday and boy did they deliver. Headline Payrolls growth punched the lights out at +321K versus +230K expected with 44K of upward revisions to previous months. The headline (U-3) unemployment and participation rates held steady at 5.8% and 62.8% respectively, but the broader U-6 measures of Unemployment continue to fall. Wage growth surprised modestly on the upside. In all, a rather golden report for Dollar bulls and enough to make US recovery pessimists like Paul Krugman say that ‘it is raining jobs like it is 1999’. He was probably referring to the fact that at +258K, the six month moving average in payrolls growth has matched its highest level since the Great Moderation (2002-2007) and is more consistent with the rate of jobs growth seen from 1194 through 1997.
The US Dollar Index rose 0.75% to 89.40 and is now just 0.3% away from breaching the Global Financial Crisis high of 89.6. US Treasuries sold off across the curve with 10 Year Yields up 7bps to 2.31%. Surprisingly Equity markets in the US only eked out a small gain whilst in Europe the Euro STOXX 50 gained 2.7%. Amongst Commodities, Gold tumbled 1.4% to $1190 but is rebounding this morning while Oil prices continued to fall helped by the fact that Saudi Arabia are applying its deepest discounts to its customers since mid-2000.
Today is very light on the economic front. We already had German Industrial Production out earlier this morning which rose 0.2% and this was less than the 0.4% expected. We have no data of note due from the US while later this evening at 5.30pm the Fed’s Lockhart will speak on Monetary Policy in Atlanta.
December S&P 500
Despite the S&P making yet another new high on Friday the McClellan Oscillator again closed in negative territory at -24. This was powerful enough to generate yet another Hindenburg Omen which is the 4th in the past 5 trading sessions and this is serious warning sign for the markets going forward. When the last Hindenburg Omen was confirmed on September 19 the stock markets fell 10% to their October 15 low before mounting this incredible 268 handle rally. I am continuing my strategy of selling rallies with tight stops until this market breaks.
After the US Employment Report was released on Friday the S&P traded higher to my 2079 sell level. This morning I have covered half of this position at 2072.50 and I will lower my stop to 2082 on the other half. If I am stopped out of this trade I will use my 5 handle rule to reset my short position with a stop just above whatever new high is reached. Given the fact we have had 4 MO’s last week I do not want to be long the market at this time despite the positive seasonal time of the year.
Euro/USD
Following the release of the Non-Farm Payrolls on Friday the Euro traded lower to my 1.2330 buy level before very quickly stopping me of this trade at 1.2295 and I am now flat. Despite been stopped out of this trade I am convinced that the Euro is in its final stages of its move lower especially given the fact that the Daily Sentiment Reading is so low at just 4% bulls. The Euro is still trading at the bottom of both its Bollinger Band and Williams Index.The Euro also has key support from 1.2230/1.2270 and today I will again be a small buyer in this area with a wider 1.2180 stop.
US Dollar Index
The Dollar Index had a nice rally after the Payrolls were released on Friday with the market trading higher to the top of my sell level at 89.25. I am still short and given the fact that I m short at the top of my range I am going to raise my stop to 90.05 especially with sentiment towards the Dollar at near record levels.
December DAX
The volatility in the Dax over the last few days has been incredible with the Dax registering a Key Day Reversal to the downside on Thursday only to completely reverse course on Friday by closing at a new all time high. I went short after the Payrolls were released at 10010 only to be very quickly stopped out of this trade at 10060 and I am now flat. The Dax is extremely overbought and just like the S&P above I am looking for a sell-extreme to happen in order for me to start to put on a more macro short position. I thought this had happened on Thursday but yet again the market was able to re-group and trade to new highs. Today I will again look to go short on any further rally to 10100/10140 in small size with a wider 10220 stop. I have to use a wider stop given the volatility coupled with the fact we now have a confirmed Hindenburg Omen. Against this we are in the traditionally strong seasonal time of the year which makes its difficult to establish a large position to the downside.
December FTSE
In contrast to the Dax, the FTSE plan worked out well as shortly after I posted on Friday the market traded higher to my 6760 sell level and following a nice sell-off this morning I have covered this position at 6710 and I am now flat. Today I will again be a seller on any rally back to 6730/6760 with a lower 6775 stop. The price action in the FTSE continues to tell me to sell rallies.
Dow Rolling Contract
The Dow had a nice rally after the Payrolls were released on Friday with the market trading higher to my 17970 sell level. I am still short as I am determined to be short when this market finally breaks. It is incredible that despite the fact the Dow closed at a new all time high on Friday that we have had 4 Hindenburg Omen’s in the last 5 trading sessions. Today I will lower my stop on this position to 18030 .
March BUND
I am still flat the Bund and today I will lower my sell level to 152.90/15320 with a 153.50 stop.
Gold Rolling Contract
Gold was hit hard on Friday with the market closing 1.4% lower. I went long at 1189 and I am still long with the same 1179 tight stop. Gold really needs to break and close over 1212 for the market to turn bullish.
Silver Rolling Contract
No change as I am still long at 15.10 since last Monday’s Key Day Reversal to the upside with the same 16.10 stop. A break and close over 16.70 will be very constructive for Silver.
January NYMEX Crude
The Crude plan worked well on Friday as shortly after I posted it traded lower to my 65.70 buy level before having a nice rally which enabled me to cover this trade at 66.40 and I am now flat. Crude is opening lower this morning and today I will again be a small buyer on any dip to 64.30/64.80 with a 63.60 stop which is just below last Monday’s low.
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