The equity market rally continued yesterday despite some poor economic data on both sides of the Atlantic. The S&P added 0.5% to reach yet another new record high. The Nasdaq is also up 0.25% to reach a 12-year high. On the data front, the Euro-Zone recorded a sixth straight Quarter of recession, down by 0.1%. France fell back into recession, down 0.2%, Spain and Italy both fell 0.5% and Portugal lost 0.3% of its output. In the US, Industrial Production fell by more than expected, the New York Empire Manufacturing Index reported a negative read versus a market looking for a positive reading whilst finally PPI came in at -0.7% versus -0.6% expected. The weak PPI is giving equities a boost as low Inflation supports those on the FOMC who are in favour of continuation of their $85 billion QE programme. US Bond Yields, which have seen a substantial rise in yields this month, steadied yesterday with 10 Year Treasuries down 2 basis points to 1.95%. Still however, the financial markets continue their positioning for an end to QE in the US sometime in the next few months. This is evidenced by US Dollar strength, higher Bond Yields and equities focused on a better economic outlook. On the currency markets the US Dollar remains on the front foot. Overnight Japan released its GDP Number and this came in at a better than expected 3.5% showing that the Japanese Economy expanded most in a year.
Today is another busy day for Economic data. This morning we have Euro-Zone CPI and Trade Numbers. Later at 1.30 pm we have CPI and the Weekly Jobless Nos from the US along with Housing Starts and the Philly Fed Index. Later in the afternoon Williams from the Fed speaks on Monetary Policy.
June S&P 500
It was a frustrating day as the S&P kept stopping me out as it has done for most of the week or just misses my buy level before having a nice rally. Yesterday it fell to 1642 just missing my 1640 buy level before the market rallied to my 1654 sell level only to stop me out at 1658 before falling 10 handles and I am now flat. I know I keep mentioning the Daily Sentiment Index readings but these readings historically have been very important. The DSI rose to 93% bulls for both the S&P and Nasdaq, 94% for the EuroStoxx 50 and 95% for Japans Nikkei. When markets are trying to put in a top it takes a lot longer than when markets are trying to bottom. In another sentiment milestone, the percentage of Market Vane Bullish Consensus reattained the 70% bullish extreme that it reached in September and March. Both episodes were followed by short term reversal in stocks and of course stocks did manage to muster new highs subsequently. The last batch of 70+% readings came in the first half of 2007. The biggest bear market since the 1930’s ultimately followed. I am only trading in very small size in this turbulent market as I await a clear pattern to emerge.
Today I will be an aggressive seller on any further rally to 1669/1674 with a 1682 stop. I will be a small seller on any rally to 1657/1660 with a 1663 stop, and I will be a small buyer on any dip to 1641/1645 with a 1639 stop.
Euro/USD
The Euro is still trading heavy and we are now below the key support at 1.2950 for two days. The Euro just missed my 1.2930 sell level before falling to 1.2840. The next major support comes in at 1.2750/1.2780 and I would expect the market to have a bounce from here. I will be a reasonable buyer in this level with a 1.2730 stop. I will still look to sell the Euro on any bounce to 1.2930/1.2950 with a 1.2970 stop.
June DAX
The Dax traded up to my 8370 sell level last night and I am now short in small with the same 8410 stop. I will look to take profit on any drop to 8300/8330. If I manage to take profit in this region, I will look to go short again on any subsequent rally to 8375/8400 with a 8420 stop. If the Dax drops to 8220/8250 I will be a buyer here with a 8195 stop.
Nasdaq 100
I have not traded or mentioned the Nasdaq for the last two months. The Nasdaq is trading heavy versus the Dow and the S&P. Today I will look to sell the Nasdaq on any rally to 3015/3040 with a 3060 stop.
June BUND
The Bund worked well yesterday as I was able to take profit at 144.75 on my 143.35 long position and I am now flat. Today I will still look to reset my long position on any dip to 144.20/144.40 with a 143.95 stop.
Gold Rolling Contract.
Gold indeed continues to trade heavy and I was stopped out of my 1405 long position for a small loss at 1395 and I am now flat. As I said yesterday my real interest is to buy the market on any dip to 1280/1310 with a 1260 stop. If Gold rallies from here I will look to go short from 1430/1440 with a 1451 stop.
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