Stronger than expected Retail Sales out of America saw the US stock market spike lower at the open but buyers soon emerged and by late afternoon the S&P was back in positive territory. The recent run of positive data out of the US is lessening concerns that the payroll tax hikes and high gasoline prices will dent the recovery. In Europe, weaker than expected Industrial Production dampened sentiment mid-session but investors became more positive after the stronger US Retail Sales with Euro stocks finishing the day just marginally down. On the currency markets, the US Dollar was the strongest performer on the back of the good Retail Sales with the Dollar Index closing up another 0.4%. The Euro was also weighed down by a lacklustre Italian Bond Auction with yields higher than the previous auction last month plus they failed to issue their full allocation. The Australian Dollar is much stronger this morning on the back of a better employment report.
Today on the economic front we have nothing of note in Europe, however at 12.30 pm, from the US, we have PPI and the Weekly Jobless Nos which will be closely watched after last weeks better than expected Non Farm Payrolls and Weekly Jobless Claims.
June Dow
I am going to start this mornings commentary with the Dow. The Daily Sentiment Index for the Dow has now risen to 87% Bulls which is just 4% away from the April 29, 2011 extreme reading of 91%. Following this extreme reading, the Dow declined 19% over the next five months and whilst I am not saying that this is going to happen this time, the risks are very high of an imminent top in the market. Another extreme reading is showing up in the Market Vanes Bullish Consensus which surveys advisors and newsletters on a daily basis. On Monday last this survey rose to 70%Stock Bulls, matching the extreme reading of September 14 last which was the day the Fed announced QE3. The S&P then topped at 1474 that day and fell 9% over the next two months.
This morning I have gone short the June Dow in small at 14435 and I will leave a stop at 14480. If I am stopped out and the Dow subsequently falls 60 points I will go short again and leave a stop at whatever high is put in. I will also look to buy the Dow on any dip to 14180/14220 with a 14150 stop.
June S&P 500
No change as I still want to go short on any rally to 1558/1562 with a 1566 stop. Again just like the Dow above if I am taken short and subsequently stopped out I will look to go short on any five handle sell off with a stop at whatever high is put in. I will also look to buy the market on any dip to 1528/1532 with a 1523 stop.
Euro/USD
Unfortunately I was stopped out of my 1.2980 long position at 1.2945 and I am now flat. The next major support is the 1.2875 level and with the Dollar Index up over 5% this month this level needs to hold or else the Euro will continue to sell off. Today given how significant this support is I am buyer on any dip to 1.2880/1.2910 with a 1.2860 stop.
GBP/USD (Cable)
Cable worked well yesterday as we dropped down to my 1.4910 buy level and I was able to take a nice profit at 1.4955 overnight and I am now flat. This morning I will look to buy Cable again on any dip to 1.4860/1.4890 with a 1.4825 stop. Given how oversold the market is I do not want to be short at this time.
June BUND
No change as the market did not close over 143.30 and I am still flat. Today I will still look to buy the market on any dip to 142.40/142.60 with a 142.20 stop. Remember a break and close over 143.30 will be very bullish.
March DAX
The Dax has gapped up this morning and I am still flat. I will look to go short the market on any rally to 8050/8080 with a 8095 stop.
Silver Rolling Contract
Silver has traded down to my buy level overnight and I have gone long at 28.70 I am not going to risk to much on this trade and I will leave my stop at 28.38.
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