U.S. Equity Markets whipsawed, the US Dollar fell and Treasuries rallied as investors assessed the Federal Reserve’s views on the economy. In a very volatile session, the S&P 500 closed lower as Chairman Jerome Powell suggested the pandemic could inflict longer-lasting damage on the economy even as the Fed signalled it would keep Interest Rates near zero possibly for years to come. The central bank also said it will at least maintain the current rate of bond purchases. Treasury 10-year yields sank to as low as 0.72%, while the Dollar extended its June slide to 2.5%. The Nasdaq 100 climbed to a record high as Tesla Inc. topped $1,000. U.S. Equities have rallied more than 40% from their March lows as central-bank asset purchases and unprecedented stimulus sparked demand for risk assets. Earlier Wednesday, Treasury Secretary Steve Mnuchin said that the U.S. “definitely” needs additional fiscal stimulus. Stocks may be the ultimate beneficiary of trillions of dollars in economic stimulus from the Fed, according to Savita Subramanian, Bank of America Corp.’s chief U.S. equity strategist. “Liquidity looking for a home” is bolstering the FANG stocks — Facebook Inc., Amazon.com Inc., Netflix Inc. and Google’s owner, Alphabet Inc. — along with their technology-driven peers, she wrote in a report this week. The danger, though, is that any complication in the economic recovery could see market gains swiftly reverse — at a time when there is less room for additional support. The pandemic is splintering the world economy, and policy makers cannot risk a premature withdrawal of lifelines to businesses and the most vulnerable people, the Organisation for Economic Co-operation and Development warned. Overnight, U.S. and European stock Futures slumped along with Asian shares after the Federal Reserve painted a long slog ahead for the economic recovery and after data showing a rise in infection rates in some U.S. states. Futures on the S&P 500 dropped more than 1% and European contracts were down over 2%. Treasuries consolidated gains made in the wake of the Fed decision, which featured fresh projections including an outlook for no interest-rate hikes through 2022. The US Dollar rebounded from Wednesday losses. Crude oil tumbled. Coronavirus cases have now surpassed 2 million in the U.S., and Texas saw the biggest jump yet.
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Equities
The S&P 500 dipped 0.5%, closing at a price of 3190.
The Dow Jones Industrial Average fell 282 points for a 1.04% loss, closing at 26989.
The NASDAQ 100 closed 1.28% higher at 10094.
The Stoxx Europe 600 Index fell 0.4%.
The MSCI Asia Pacific Index climbed 0.5%.
This morning the Nikkei closed 2.82% lower at 22,473
Currencies
Here is a summary of the main Changes in F.X. Markets:
The Bloomberg Dollar Spot Index fell 0.6%.
The Euro advanced 0.3% to $1.1371.
The Japanese yen appreciated 0.6% to 107.15 per dollar.
Bonds
The yield on 10-year Treasuries declined nine basis points to 0.73%.
Germany’s 10-year yield fell two basis points to -0.33%.
Britain’s 10-year yield dipped seven basis points to 0.267%.
Commodities
The Bloomberg Commodity Index increased 0.4%.
West Texas Intermediate crude advanced 0.1% to $38.99 a barrel.
Gold gained 1.4% to $1,745.20 an ounce.
This morning on the Economic Front we have the Euro-area Finance Ministers meeting to discuss the EU’s recovery package and Eurogroup presidency succession. At 1.30 pm we have the latest U.S Weekly Jobless Claims where another 1.55 million are expected to have lost their jobs. Finally, and at the same time we have PPI.
June S&P 500
The signs are unmistakable. A sports commentator with 1.5 million Twitter followers who is new to day-trading stocks says ‘’stocks only go up, this is the easiest game I have been a part of’’. As I have mentioned yesterday, buying the shares of bankrupt companies is now the rage. Yesterday’s Wall Street Journal reported that a 22-year old laid off worker is using a portion of her $1,200 stimulus cheque to trade stocks for the first time. Robinhood saw a 30% increase in new accounts in the first four months of the year and in June alone, TD Armeritrade had a 400% y-o-y increase in trades. Call buying relative to Put buying is at a 10-year extreme. At .46, the 10-Day Average of the CBOE Equity Put/Call Ratio has not been this low since April 19, 2010. The S&P was subsequently 17% lower over the following three months. There is no doubt that the past 10 days have been challenging as shown by the incredible divergence between the Dow and NASDAQ with the S&P caught in the middle. This is very similar to the 2000 top when the Dow topped two months before the NASDAQ, before the latter crashed 78%. Shortly after the Fed Statement was released the S&P spiked to a rebound high at 3220 before getting slammed overnight on after data showed a spike in infection rates in a number of U.S States. So far we have hit a low at 3128, 70 Handles below last night’s Chicago close. I would expect some of this Gap at least to be filled when the US Markets open. As I am now long the Dow I will lower my S&P buy level to 3095/3115 with a lower 3079 stop. I will now lower my sell level to 3190/3210 with a 3225 stop.
EUR/USD
Frustratingly the Euro just missed my 1.1425 sell level with a 1.1422 high print before selling off as expected to trade at 1.1340 this morning. Sentiment is getting extreme with the DSI closing at 79%, the highest level since February 1, 2018 (84%), which was shortly before the top. Today I will lower my sell level to 1.1390/1.1450 with a 1.1505 stop. Meanwhile I will leave my 1.1210/1.1260 buy level unchanged with the same 1.1175 tight stop.
June Dollar Index
My Dollar plan worked well with the Dollar trading lower to my 95.75 buy level before rallying to my revised 96.00 T/P level and I am now flat. Given how oversold the Dollar is trading I will again look to buy the market from 95.50/95.90 with a 95.05 stop.
June DAX
My DAX plan also worked well with the market trading lower to my 12540 buy level before rallying to my 12625 T/P level. Subsequently I emailed my Platinum Members to buy the DAX again at 12480 before thankfully exiting this trade at 12502 shortly before the US Markets closed and I am still flat. This morning the DAX is trading at 12220, over 500 points lower from where I marked prices 24 hours ago. The DAX has short-term support from 11950/12100 where I will be a buyer with a 11875 stop. Ahead of the Euro-Zone Finance Ministers Meeting I do not want to be short the DAX today.
June FTSE
I have mentioned countless times what a great leader the FTSE is. This market has traded heavy relative to both the European and US Indices over the past two weeks. This morning the FTSE has opened below yesterday’ buy range and I have gone long in small size here at 6180. I will have a stop at 6125 on this position while my T/P level will be at 6240. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Dow Rolling Contract
The Dow is trading 1100 points lower from where I marked prices 24 hours ago. This has been a difficult market to try and short given the huge divergence against the NASDAQ. I have bought the Dow here is small size at 26450 with a 26300 stop. The Dow is now trading 600 points below last night’s close and I would expect some of this larger ‘’Gap’’ to be closed when the US Markets open. I will have a T/P level on this position at 26605.
June NASDAQ
The DSI closed at an incredible 94% for the NASDAQ last night. I have been bearish this market for the last two weeks which has been difficult given the extent of the rally. Yesterday I was stopped out of my 9945 short position at 10055. After the FOMC Statement was released I emailed my Platinum Members to sell the market again at 10130 before we traded lower overnight to my too tight 10055 T/P level and I am now flat. This morning the market is trading lower at 9960. Just like the S&P and Dow I would expect some of last night’s Gap at 10094 to be filled. Today, I will be a seller from 10090/10170 with a 10235 stop. The NASDAQ has strong support from 9850/9710 where I will be a buyer with a 9625 stop.
September BUND
Given the level of debt that the Central Banks have created over the past two months, there is no way they can afford for Bond Yields to rise. In my opinion, the Bond Markets are only a buy on dips. Yesterday the Bund rallied 100 points and I am still flat. I will now raise my buy level to 173.70/174.20 with a 173.15 stop which is just below yesterday’s 173.20 low print.
Gold Rolling Contract
Risk off this morning sees Gold trading higher and I am still flat. I will now raise my buy level to 1698/1708 with a 1689 stop.
Silver Rolling Contract
I am still flat and I will now raise my buy level to 17.10/17.50 with a higher 16.75 stop.
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