The US Federal Reserve last announced that it was starting to taper its QE Programme leading to one of the most volatile two hours of trading that we have seen so far this year in every asset class. The FOMC announced a reduction in the purchase of Treasury and Mortgaged-Backed Securities, each by $5bn a month for a total taper of $10bn a month starting in January. By starting to taper the Fed is deciding to modestly reduce the pace of the asset purchases. They will still be buying $75bn of assets so realistically what the Fed announced last night was the minimum taper that they could initiate. They said that they expect these continued purchases to still put downward pressure on longer term interest rates.
The forward guidance is that further tapering steps remain data dependent and has been left open-ended and in discrete policy steps rather than any mechanical preset reduction per month. Therefore the next tapering will be subject to the economy improving especially with regards to the Unemployment rate falling and continued improvement in Retail Sales. The Dow closed up almost 300 points having been down earlier while the March S&P having touched 1760 after the Fed announcement then rose almost 50 handles with the first 30 of these happening in the first seven minutes following the Fed news.
The Fed statement also stated that interest rates will remain low ‘until well past the time that the unemployment rate falls below 6 1/2%’ implying that this 6 1/2% rate is a threshold and not a trigger to start increasing the Fed Funds as previously stated
This morning on the economic front we have UK Retail Sales, followed at 1.30 pm, by the US Weekly Jobless Claims and Existing Home Sales which should be stronger given the huge increase in Housing Starts yesterday which rose to a five year high. Later this afternoon we have the Philly Fed outlook.
March S&P 500
Yesterday or more specifically last night produced some of the wildest intraday swings that I have seen since the height of the credit crisis. After The Fed announced that it is to start tapering in January the the S&P traded down to my 1762 buy level before literally seven minutes later after the market realized that the Fed were not going to hike the Fed Funds Rate for along time to come just went on a buying frenzy. I covered my 1762 long position at 1790. Subsequently the market continued to trade higher and I tried a small short position at 1796 only to be quickly stopped out of this trade at 1802 and I am now flat. As I mentioned over the last 18 months the best way to approach an FOMC Meeting is to be flat going into the event with a low buy order and a high sell order in place over the announcement and it is amazing how much money you can make on a knee jerk reaction such as occurred last night. I am very impressed the fact that the cash S&P is back challenging the 1812 all time high made at the end of November and if the market can close over this level this evening I would expect the S&P to challenge the 1840 resistance level by year end. Today I will be abuyer of the March Contract on any dip to 1793/1798 with a 1789 stop. Remember tomorrow is contract expiration for the December Contract and normally the December Expiration has upward momentum. For this reason I do not want to be short the S&P today.
Euro/USD
The Euro also had a wild trading session last night as having initially dipped to 1.3700 after the announcement then rose to 1.3810 before trading down to my 1.3650 buy level overnight. As most members know at this stage I am very bullish of the Dollar going forward and I have decided to cover my long Euro position this morning at 1.3680 and I am now flat.
After the announcement I was stopped out of my 79.90 long March US Dollar Index position.The Index then made a new low near 79.60 and I re-bought my position at 79.80 and I am still long. The Index is difficult to trade on a Daily basis because of the wide spread. I will raise my stop on this position to 80.20.
March DAX
The Dax also had a wild night after the Fed announcement. The market traded up to my 9240 sell level in the December contract before quickly stopping me out of this position at 9270 and I am now flat. Yesterday was another great example of how important it is to have stops in the market. I have now rolled to the March Contract which is trading a premium of 12 points to the cash market. Today I will be a seller on any rally to 9370/9400 with a 9425 stop while I will also be a buyer on any dip to 9240/9270 with a 9230 stop.
March FTSE
The FTSE worked out well last night as the market traded down to my 6480 buy level before the announcement and after a nice rally I was able to cover this position at 6550 and I am now flat.
This morning I have rolled to the March contract which unlike the Dax above is trading at a 50 point discount to the cash market. Today I will be a buyer of the March contract on any dip to 6470/6490 with a 6455 stop. I still do not want to be short the Ftse at this time.
Dow Rolling Contract
I was very unlucky last night as the Dow just missed my 15800 buy level with a 15810 low before trading nearly 400 points higher off this level. I tried a small short at 16050 but I was quickly stopped out of this position at 16110 and I am now flat. In the process the Dow hass broken above this 13 year trendline and I am amazed how easily it was able to achieve this. The Dow is back near the top of the Bollinger BAND AND wILLIAMS iNDEx and today I will be a small seller on any rally to 16210/16240 with a 16260 stop. I do not want to be long the Dow at these levels.
March BUND
No change as I am still a buyer on any dip to 139.40/139.65 with a 139.05 stop.
Gold Rolling Contract
Gold worked really well last night as after the announcement Gold traded down to my 1225 buy level before having a nice rally and I was able to cover this position at 1237 and I am now flat. Gold is a lot lower this morning and is trying to break the key 1200 level for hopefully a test of the 1180 level that I have been looking for over the last month. This morning I am going to scale into a long Gold position. I will buy a small portion here at 1203 and I will look to add to this trade on any dip to 1180/1195 with a 1170 stop on the whole position.
Silver Rolling Contract
Silver also worked well as after the announcement Silver having sold off initially then rose to 20.20 where I was able to cover my 19.80 long position and I am now flat.This morning Silver is following Gold lower and today I will be a buyer on any dip to 19.00/19.30 with a wider 18.50 stop.
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