Equity markets mostly closed in the red yesterday, dragged down by banking stocks after global regulators fined six international banks $4.3bn for attempting to fix foreign exchange markets. European stocks averaged a 1.1% loss while the US markets closed flat after a late rally into the close. Meanwhile oil prices have fallen another 2% on reports OPEC members will resist calls to lower output at their next meeting on November 27.
In currency markets the big mover was Sterling after the Bank of England said that inflation could fall below 1% over the next six months and Governor Carney only added to the gloom by suggesting that the ‘spectre of economic stagnation’is haunting Europe. Cable has fallen from 1.5940 to 1.5775 currently which is now its lowest level since September 2013.
The Euro also closed a bit lower yesterday after ECB President Dragi reaffirmed that the ECB will take further unconventional policy actions if inflation expectations worsen. The Euro had also taken a hit earlier after Fed Member Plosser said in a speech in London that FOMC officials must prepare markets for an earlier than expected increase in interest rates and that the Fed risked inflation and financial instability by waiting.
In Japan, officials keep denying an election will be called but reports suggest that Abe’s aides are preparing for an election campaign next month. This has led to the Yen weakening another 0.2% overnight to 115.85 versus the US Dollar currently.
Overnight China released its latest Industrial Production. China’s economic slowdown deepened in October as industrial output growth and fixed-asset investment trailed estimates, adding to pressure on policy makers to step up stimulus efforts.
Factory production rose 7.7 percent from a year earlier, the National Bureau of Statistics said in Beijing, compared with the 8 percent median estimate in a Bloomberg News survey and the second smallest rise since 2009. Retail sales gained 11.5 percent and fixed-asset investment in January through October increased 15.9 percent, the slowest pace since 2001. However the above data has not effected the equity markets so far which are opening stronger this morning.
This morning on the economic front we have German CPI at 8.00 am, while the only other data of note due today is US Weekly Jobless Claims at 1.30 pm.
December S&P 500
The S&P plan again worked well yesterday as the idea of selling spikes into this vertical rally from the October 15 low at 1812 continues to pay dividends. After I posted yesterday the S&P spiked higher to my 2034 sell level before having a nice sell-off after the US markets opened which enabled me to be able to cover this position at 2029 and I am now flat. The Internals continue to weaken with the McClellan Oscillator again closing lower at +124. However this has stopped the market for trading higher overnight as the Nikkei again closed with another 1% gain. Today I will again be a small seller from 2042/2047 with a 2052 stop. Again if I am taken short and subsequently stopped out I will use my 5 handle rule to reinstate my short position with a stop just above whatever new high is put in. For me to go short with a more macro position I have to wait until we see a sell extreme in the market which so far we have not had any since the famous October 15 low. My only interest in buying the market is on a dip to 2020/2025 with a 2015 stop.
Euro/USD
Just as I posted yesterday morning the Euro started to weaken on comments from Fed member Bullard who said the Fed have to prepare the markets for an earlier tightening of US rates. The Euro quickly traded down to my 1.2440 buy level. I am still long and I will leave my stop the same at 1.2390 which is just below last Monday’s low. If I am stopped out of this position I will be a more aggressive buyer in front of 1.2350 with a 1.2295 stop.
US Dollar Index
The Dollar continued to strengthen after I posted yesterday with the market trading higher to my 87.90 sell level. I am convinced given how overbought the Dollar is currently trading that we will get at least a decent correction before trading higher. I will leave my stop the same at 88.45.
December DAX
The Dax plan worked very well yesterday as just after I posted the Dax traded higher to my 9310 sell level with a 9320 high. After I went short the Dax had a nasty sell-off which enabled me to cover this position at 9240 and I am now flat. The idea of not to be long the Dax is certainly working out as the Dax continues to underperform the other major indices which is no surprise given the serious Deflation concerns for the German economy.Today I will again be a small seller on any further rally to 9270/9310 with a 9330 stop. I still do not want to be long the Dax at this time.
December FTSE
Unfortunately I was stopped out of my 6610 short position at 6630. Given Governor Carney’s comments in relation to inflation yesterday it is very hard to make a bullish case for the Ftse at this time as we all know that Deflation is the curse of any Central Banker. For this reason I have gone short again this morning at 6620 with a 6655 stop.
Dow Rolling Contract
Overnight the Dow has traded up to my 16680 sell level. I am still short and I will leave my stop the same at 17760 as I have to use a wider stop given the volatility.
December BUND
No change as I am still a seller on any rally to 151.70/152.00 which the market just missed yesterday after I posted. If I am taken short I will leave my stop the same at 152.25. I still do not want to be long the Bund at this time.
Gold Rolling Contract
Overnight Gold has traded down to my 1157 buy level. I am still long and I will leave my stop the same at 1143. If I am stopped out of this position I will be a more aggressive buyer in front of 1120 with a 1095 stop especially given how strong the Daily Sentiment Reading for Gold currently prints.
Silver Rolling Contract
No change as I am still long Silver at 15.30 and 15.80 with the same 15.25 stop. Again if Silver breaks 16.25 I will raise my stop on these two positions to 15.75.
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