Equities had a somewhat muted positive reaction to Ben Bernanke’s speech yesterday afternoon. US Housing data was disappointing but some good earnings reports notably from Bank of America helped the US market. The Fed’s Beige Book showed that the economy was growing at a ‘modest to moderate pace’ which is little changed from the last report.
Ben Bernanke’s testimony to the House turned out to be a re-run of his last speech on July 10 where he spelled out that the commencement of tapering of Asset Purchases was not the same thing as a tightening of policy – the response was a strong rally in equities. The Testimony Section entitled ‘Monetary Policy’ kicks off with a repeat of the statement ‘a highly accommodative stance of monetary policy will be appropriate for the foreseeable future’. Nonetheless he stuck to the line that if the economy performs as expected, it would be appropriate to begin to moderate the monthly pace of purchases later this year. He also gave more emphasis to concerns about inflation going below the FOMC’s goal of 2% suggesting under performance here might mean no tapering. However the bottom line remains that the economy is looking better and jobs creation is back close to the pre-GFC levels so September looks likely to be the first meeting where tapering might begin.
In the UK, the Bank of England Minutes showed a united MPC with a unanimous vote to keep Bond purchases at £375 billion.
This morning on the economic front we have UK Retail Sales and the Euro-Zone Current Account. Spain is due to sell some bonds whilst later from the US we have the Weekly Jobless Claims, Philly Fed and Leading Indicators. Bernanke then concludes his two day testimony this time in front of the Senate.
September S&P 500
Yesterday was another day for low volume despite the huge expectation around Ben Bernanke”s testimony. The S&P just missed my 1665 buy level with a 1665.50 low before having a nice rally but falling short of my 1685 sell level. When the market is this quiet sometimes it is better not to have a position and this is one of these times given that Bernanke has to speak again to the Senate this afternoon. Bernanke did not have to face any trick questions yesterday and maybe today will be different.
Today I will increase my sell level to 1690/1695 with a 1702 stop and I will also raise my buy level to 1665/1670 with a 1663 stop. Again if I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1652 with a 1646 stop.
Euro/USD
The Euro worked well as the market dropped down to my 1.3100 buy level before having a nice rally. I was able to cover my position at 1.3140 and I am now flat. Today I will lower my buy level to 1.3070/1.3100 with a 1.3060 stop. I still do not want to be short at this time.
September FTSE
The FTSE plan worked well as the market dropped down to my 6470 buy level with a 6467 low and after a nice rally ahead of Bernanke’s speech I was able to cover this position at 6520 and I am now flat. Today I will raise my buy level to 6470/6490 with a 6455 stop. My only interest in selling the FTSE is on a rally to 6570/6600 with a 6620 stop.
September DAX
The DAX had another wild day yesterday after been down hard early in the morning. It rebounded before lunch and this trend continued after Bernanke’s prepared statement was released. The DAX rallied to my 8260 sell level and I have been able to cover this position this morning at 8230 and I am now flat. Today I will still be a seller on any rally to 8260/8290 with the same 8310 stop. As long as the DAX can stay below 8300 the market is bearish, however a break and close over 8310 will be short term bullish and would probably lead to the DAX trading back to the 8400 area.
Gold Rolling Contract
Gold worked well yesterday as the 1302 stop on my short did not get hit and the market proceeded to sell off hard. I was able to cover my position at 1275 and I am now flat. The 1300 is good resistance and today I will be a small seller again on any rally back to 1288/1298 with the same 1302 stop.
Silver Rolling Contract
As expected, Silver ran into trouble at the 20.20 resistance area before sellers returned to knock the market down 4%. I was lucky yesterday as when I saw that Gold could not break 1300 I was able to cover my long Silver position at 20.11 and I am now flat. Silver is retesting the important 19.00/19.20 support zone and I will be a small buyer here with a 18.80 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 18.30/18.60 with a 17.95 stop.
September BUND
The Bund worked really well yesterday as the market dipped down to my 143.45 buy level with a 143.28 low. I have covered this position this morning at 144.00 and I am now flat. I still like the Bund and any decent sell offs are to be bought. Today I will be a small buyer on any dip to 143.60/143.80 with a 143.35 stop. As long as the Bund can stay over 143.40 the market is bullish.
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