After I wrote yesterday’s commentary, rumors of a downgrade of German debt sent the European equity markets sharply lower with the Dax leading the way by falling 2.3% – it is now down for the year. These heavy falls in European bourses flowed into US Equities with the S&P and Dow losing 1.4% and 0.9% respectively. Commodities were sold heavily with CO2 emissions futures smashed in Europe and are down by 11%. The US Dollar had a strong rebound with the Dollar Index rising over 1%. Bond yields were lower as money sought safe havens. Europe reacted to a variety of woes but concerns about the resilience of global growth is the key in the wake of Tuesdays IMF downgrade combined with disappointing Chinese growth numbers on Monday and then poor German car sales yesterday. The UK had to cope with a rise in the unemployment rate to 7.9% and a drop in mining shares as commodities tanked. Bundesbank President Jens Weidmann did not help matters, saying that interest rates could be cut if warranted by further weakness in the Euro-Zone. Poor earnings from Bank of America plus concerns about Apple, which reports next Tuesday, weighed on stocks in the US. Apple’s woes follow poor earnings from component supplier Cimus Lopic which reported poor earnings and weaker sales predictions thus triggering a 5.5% drop in Apple shares and contributing to a 1.8% drop in the Nasdaq. The Fed’s Bullard said that inflation may be falling too far below their 2% target meaning the Fed will have to do more QE.
Today is another busy one on the economic front. We have UK Retail Sales this morning at 9.30 am followed in the US by the Weekly Jobless Claims which will be closely watched after last weeks excellent Numbers. This is followed by the Philly Fed and yet another round of Fed members speaking, namely Lacker and Raskin.
June S&P 500
Monday’s 90% down day which led to the sharp one-day rebound on Tuesday had no follow through yesterday with the S&P testing Monday night’s low before having a nice mid day rally. As I wrote yesterday I would be a small buyer in the 1553/1558 area with a 1549 stop and after I posted the market was already in freefall following the rumors of a German downgrade. I bought the S&P at 1555 and I was stopped out at 1549 for a small loss. I then said if the market stopped me out I would be an aggressive buyer between 1536/1540. The market then dropped down to my 1540 buy area and I took a gain at 1548 and I am now flat. The volatility we are experiencing is intense and this is likely to continue near term. Today I will look to buy the market once more on any dip to 1530/1534 with a 1526 stop in small size. I will also look to go short the market also in small size on any rally to 1550/1555 with a 1559 stop. A break and close below 1530 is very bearish and the next meaningful support does not come in until the 1480/1490 lows made in February.
Euro/USD
The nice rally we had in the Euro came to an abrupt end after comments from Bundesbank President Weidmann. I bought the Euro in small at 1.3130 and I was quickly stopped out at 1.3095 and I am now flat. Yesterday was another great example of how important stops are in the market. The next big support for the Euro is at 1.2990 and as long as the Euro stays over this level the market is fine but a break and close below here will be bearish. Today I will be a small buyer on any dip to 1.3010/1.3030 with a 1.2985 stop.
June DAX
What a day for the Dax as intense selling led to a 240 point drop in the market. The fact the Dax broke and closed so easily below 7620 is not good. It dropped down to my 7510 buy level and I went long in small. I will leave my stop at 7480 which is just below yesterday’s low. I will look to take profit in front of 7550 and I will also look to go short on any further rally to 7580/7600 with a 7625 stop. If I am stopped out of my long position I will be a stronger buyer on any dip to 7415/7440 with a 7395 stop.
June FTSE
The FTSE worked well and I took a gain at 6180 on my 6215 short position from yesterday morning and I am now flat. The FTSE is still below the key 6215/6240 support zone and today I will be a seller on any rally to 6230/6240 with a 6290 stop which is just above Monday’s highs.
June BUND
The Bund traded up to my 146.10 sell level but I had my stop too tight at 146.30 and I was stopped out for a small loss. I do not like the Bund and I have gone short again this morning in small at 146.22. As it is a small position I will leave a 146.60 stop. I still do not want to be long the Bund at this time.
Gold Rolling Contract
Gold worked well yesterday as we had a nice rally before sellers returned. I took profit at 1392 on my 1375 long position and I am now flat. The Daily Sentiment Index has fallen to just 3% bulls for Gold which is one of the lowest on record and for this reason I will look for Gold to have a nice sharp counter trend rally. Today I will look to buy Gold in small on any dip to 1360/1370 with a 1335 stop which is just below the overnight low. Again if I am stopped out on any long position I will be an aggressive buyer on any dip to 1290/1310 with a 1270 stop.
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