Something of a return to the good old days in the last 24 hours, when an infolding economic calendar and rhetoric from Fed officials counted for more than what the leader of the free world had to say. So it was that New York Fed president Bill Dudley – considered to be one three most important Fed officials after Janet Yellen and Stanley Fisher – electrified markets first thing yesterday with his comments that the case for Fed tightening had become “a lot more compelling in recent months” and that “…the risks to the outlook are now starting to tilt to the upside”. These came hot on the heels of remarks from San Francisco Fed president John Williams that he saw a March hike getting “serious consideration”. The net effect was to see market-implied probabilities for a March rate hike shift from near 50% at the start of the week to more like 80% now.
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For anyone following my Platinum Service it lost points yesterday for only the second time this year with a 70 point loss on the first trading day of March, having made 1481 points in February, 1734 in January, 1351 in December, 1971 in November and 1582 in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.
It is evidently now going to take a very disappointing US Payrolls Report on March 10th – in particular evidence that earnings growth is not after all starting to pick up – to knock the market off the scent of a move on March 15th (incidentally the same day that the US Government is expected to bump up against the debt ceiling, that was temporarily lifted with bipartisan support in front for the US elections). This will also be the week where the US Administration is indicating it will provide at least an outline, rather than a blueprint, of its budget proposals about which President Trump provided very little detail yesterday such that market reaction was extremely limited.
Looking across markets, what is particularly noteworthy is that US stocks have powered ahead (the Dow above 21,000 for the first time) seemingly unperturbed by the sharply rising risk of a March hike (and which were it to occur would surely also have markets now believing that the Fed can and will deliver a total of three hikes this year). This tells as that Fed tightening in the face of unambiguous economic strength is not something to be feared.
In this regard, yesterday’s Manufacturing ISM report was gratifying, coming in ahead of expectations at 57.7 up from 56.0 in January and with the New Orders sub-series leaping to 65.1 from 60.4. At the same time, the Fed’s preferred PCE deflator inflation measure remained sedate in January, unchanged at 1.7% and something that the likes of Fed dove Neil Kashkari will use to support his claim the Fed should be in no rush to tighten. The Fed’s Beige Book shows most Districts reporting activity to be expanding at a ‘modest to moderate’ pace.
In the Eurozone, where the PMI story is also one of building economic strength, the higher than expected German CPI print at 2.2% up from .1.9% has provided a measure of support for the Euro against a stronger US Dollar backdrop. In contrast, a weaker than expected UK Manufacturing PMI (54.6 from 55.7 and 55.8 expected) has taken a bite out of Sterling.
For the Australian Dollar, it’s a very familiar scene to come in and see AUD/USD sitting comfortably between 0.7650 and 0.7700. Yesterday’s Fed-inspired rally in the US Dollar is largely offset by a positive reaction to yesterday’s better than expected Q4 GDP figures. This leaves the AUD as by far the best performing G10 currency of the last 24 hours.
Finally, the Bank of Canada met yesterday against the backdrop of a big upside CPI surprise last Friday, but in leaving rates unchanged continued to point to persistent economic slack and ‘significant uncertainties’ weighing in the country’s outlook.
This morning on the economic front we have the Euro-Zone Unemployment Rate at 10.00 am. Finally at 1.30 pm we have US Weekly Jobless Claims and Canadian GDP.
Ahead of speeches both from Fed chair Janet Yellen and vice-chair Stanley Fischer tomorrow afternoon, the Fed speaking rostrum is today occupied by Lael Brainard who speaks this afternoon at Harvard university. I doubt she’ll pull the market off the scent of a March rate rise even though she has in the past been very vocal about the risks to the US economy from US dollar strength and its effect in tightening financial conditions. Those concerns should be less evident given the dollar’s performance so far this year.
March S&P 500
My S&P plan did not work well yesterday on what turned out to be a 1.37% rise for the market which rallied over 35 Handles at one stage as every short position just got slammed. Yesterday’s rise has left a large ”Open Gap” from Tuesday’s Chicago close at 2364 to yesterday afternoon’s Chicago low at 2382 and as we saw from 10 days ago when a similar 15 Handle ”Gap” was left open that subsequently over 13 Handles of this ”Gap” was filled last Friday when the S&P traded to a 2349 low print. The current sentiment extreme that I have consistently mentioned over the past two weeks was enhanced by yesterday’s blow off move to the upside and is reminiscent of what occurred in January 1987 when we had similar extremities. Back in 1987 the market sold off before rallying in a sideways fashion until October when we had the famous 1987 stock market crash. In my opinion we will have something similar where any day now the market is going to sell off aggressively before bouncing to either a new all-time high or close by before the market finally rolls over. In my 31 years of trading this is the most dangerous market that I have seen. Incredibly for a stock market that rallied so hard yesterday the McClellan Oscillator only barley closed in positive territory with a +13 print. Today’s opening ”Gap” may be an exhaustion gap but the only way to confirm that is for the Indexes to close these gaps which are 2364 for the S&P and 20,812 for the Dow. Yesterday after the S&P traded higher to my 2378.50 average sell level, thankfully I had a tight stop at 2386 which was subsequently filled. I then emailed my Platinum Members to raise my second sell level in the S&P to 2399 and after I was filled I cut this position for a breakeven as I was already short both the Dow and FTSE and did not want anymore exposure overnight and I am now flat. The time has now come to put on a small macro short position whether it is in the Dow like I have or the S&P but you need a wider stop hence the small size. Today I will again look to sell the S&P from 2399/2405 with a 2411 stop. I will be an aggressive buyer on the first attempt for the S&P to close the ”Open Gap” mentioned above and I will therefore look to buy the market from 2365/2372 with a 2358 stop.
Given all the talk of an imminent rate hike on March 15 by the Fed I would have thought that the Euro would have traded lower on the back of the stronger Dollar especially ahead of the Dutch Elections in two weeks. I am still flat the Euro which just missed my 1.0610 sell level with a late rally to 1.0590. Today I will be a buer of the Euro on any dip lower to 1.0460/1.0500 with a 1.0425 stop. I will raise my sell level slightly from yesterday to 1.0620/1.0655 with a 1.0690 stop.
March Dollar Index
No change as I am still a small seller on any rally higher to 102.25/102.55 with a 102.85 stop. Remember the Dollar has strong resistance at 102.45 which I would expect the market to having difficulty in breaking initially especially after January’s Downside Key Month Reversal. I will still look to buy the Dollar on any dip lower to 100.90/101.30 with the same 100.60 stop.
With all four of my Indices hitting my sell level almost at the same time I emailed my Platinum Members to exit any 12030 short position at 12025 and I am now flat. I know most members will only have a max of two open equity positions at the same time which is the prudent thing to do. Yesterday’s move higher in the DAX makes it more frustrating for me having got stopped out last Friday at 11760 which was near the low of the day especially when you see the market trading 300 points higher yesterday. I must say I do n ot like the price action of the DAX since we broke 12,000 and today I will be a small seller on any rally higher to 12130/12180 with a 12220 stop. I still do not want to be long the DAX at this time. The DAX has a 5.5 year trendine at 12150 which should be difficult to break initially.
The FTSE plan is not working with the market hitting my 7340 sell level. The FTSE is severely overbought and trading at the top of its Bollinger Band and Williams Index helped by a much weaker Sterling after yesterday’s awful PMI data. The FTSE closed at new all-time highs and today I will raise my stop slightly to 7400. If I am stopped out of this position I will be a more aggressive seller from 7440/7490 with a 7515 stop. My only interest in buying the FTSE is on an unexpected dip lower to 7295/7325 with a 7265 stop.
Dow Rolling Contract
Having taken five attempts to break 20,000, the 21,000 level was broken on the first attempt with gutso. The Dow is now up over 22% since the low following the Trump victory and has closed higher on 13 of the last 14 trading sessions. Some people may not like Truump, buy the American people must love what he has done for their 401k pension funds. The Dow has not had a 1% fall in nearly 4 months. Yesterday after the Dow hit my initial sell level at 20995 I went short in small size as I try to scale into this position. Subsequently I emailed my Platinum Members to add into this position at 20120 and I am now short at an average rate of 21058. This is my first time in many years putting up a small stance against the US stock market as all members know that I have been bullish in that time. I know we have not had a sell extreme and I may be ahead of time but I am only short in small size. For this reason and given the fact how successful the Platinum Service has been since inception I am prepared to risk some of these points here. As a result I will now raise my stop on this position to 21240. However given the extent of yesterday’s strong ”Open Gap” at 20812, I will be an aggressive buyer on any dip lower to 20795/20855 with a 20740 tight stop.
After the Bund hit my 165.17 buy level I emailed my Platinum Members to buy more at 164.85. As I had so many open positions on board and offside I emailed my members again to exit this position for a breakeven at 165.01 and I am now flat. This morning the Bund is trading lower in oversold conditions as it looks to test important support at 164.40 Today I will again look to buy the Bund on any dip lower to 164.10/164.50 with a 163.80 stop.
Gold Rolling Contract
No change as I am still a seller on any rally higher to 1255/1262 with the same 1268 tight stop.
Silver Rolling Contract
I am still flat Silver and I am going to stay flat as we await for the market to make its next move.