Equity markets got hit hard on both sides of the Atlantic in yesterday’s trading as markets again re-focused on geo-politics with Hong Kong pro-democracy protests continuing during their two day Public Holiday. The Dow closed down 238 points or 1.4% and in the process has had one of its worse days of the year so far. The US economic data reflected an economy that is still performing strongly at the end of the September Quarter. The ADP Employment Report revealed a step up in head count to 213K from 202K last Month ahead of tomorrow’s Non Farm Payrolls while the ISM Manufacturing Index for September printed at 56.6 still strong even if lower than the 58.5 expected and last month’s very high 590 print.
The VIX closed another 2.5% higher at 16.71. It has not broken through recent highs but it is still near its highest reading since late January. A risk-off/safe/haven bid supported the US Treasury Markets with 10 years down 10bps to 2.39%.
This morning on the economic front we have UK Construction PMI at 9.30am. This is followed at 12.45 by the ECB Rate decision and Dragi Press conference which follows at 1.30pm. Again this promises to be a volatile conference especially after the very weak inflation data reported last Tuesday. At the same time the US will release its latest Weekly Jobless Claims and finally at 3pm we have US Factory Orders.
December S&P 500
The S&P continued its recent sell-off yesterday with the market closing down another 1.4%. The S&P has now lost over 70 handles since the September contract expiration and Alibaba IPO two weeks ago. Thankfully we have not be long for any of this move. As I mentioned yesterday the 1935/1940 is very good support for the S&P as a break and close below this level opens up the possibility of a move down to at least 1870. Today the S&P is very oversold and trading at the bottom of its Bollinger Band and in this key 1935/1940 support zone. I will be a very small buyer from 1935/1940 with a 1929 stop. Resistance comes in at 1962/1968 and I will be a seller in this region with a 1973 stop. As we have the key Non Farm Payroll data tomorrow I would expect an attempt to rally ahead of these numbers.
Euro/USD
The Euro plan worked very well yesterday as shortly after I posted the Euro traded lower to my 1.2590 buy level and after a nice rally overnight I have been able to cover this position at 1.2650 and I am now flat. I am going to stay flat ahead of the ECB and Dragi press conference which follows at 1.30pm. I still believe that the Euro is in the very late stages of its recent steep decline from 1.3993 in May and is ripe for a counter trend move. The Daily Sentiment Index remains under 10% bulls with the 10 day average fallen to just 7.2% If the Euro falls after the Dragi Press conference I will look to buy the market again from 1.2580/1.2615 with the same 1.2550 stop which is just below this week’s low.
US Dollar Index
Finally the Index is starting to move lower. I am still short at 86.10 and I will leave my stop the same at 86.40 which is just above last Tuesday’s high.
December DAX
The Dax plan worked perfectly yesterday as after I posted the Dax was trading near the highs of the Day at my 9510 sell level. After I went short the Dax got hit hard and had yet another Key Day Reversal to the downside. This is the second downside Key Day Reversal in the last two weeks. I covered my short position at 9400 and I am now flat. I am going to stay flat ahead of the ECB this afternoon. Just like the S&P above the S&P is very oversold and trading at the bottom of its Bollinger Band and Williams Index. Today I will be a small buyer on any further dip to 9240/9270 with a 9195 stop. The fact that we have now closed below the key 9470/9500 support area for the last three days means that this level will now act as strong resistance. Today I will be a seller on any rally back to 9440/9470 with a 9510 stop.
December FTSE
The Ftse continued its recent sell-off since the Scottish Referendum with the market down nearly 400 points from its post referendum high. after I posted yesterday morning I was very quickly stopped out of my long 6580 position for a small loss at 6535 and I am now flat. Yesterday was another very important example of why it is so important to have stops in the market. This morning the Ftse is very over sold and for this reason I have gone long again at 6500 with a 6465 stop. Given how oversold the Ftse is trading I do not want to be short the market at this time.
Dow Rolling Contract
The Dow just missed my sell level before getting hit hard yesterday. Since the Dow made its high in late September the market is down over 550 points. Today the Dow is very oversold and trading at the bottom of its Bollinger Band and the fact that we have Non Farm Payrolls tomorrow I would expect some sort of rally to develop today ahead of this very important economic release. For this reason I will be a small buyer from 16730/16770 with a 16690 stop. Given how oversold the Dow is trading today I do not want to be short the market at this time.
December Bund
The Bund plan did not work out as expected and I was finally stopped out of my short 149.60 position at 15.05 yesterday evening and I am now flat. I am going to stay flat as the 150.00 is key for the major move in the Bund. Value above 150.00 sees a potential move to 151.80, while value below opens up the possibility of a move to 148.40.
Gold Rolling Contract
No change as I am still long at 1215 with the same 1199 stop. Again if I am stopped out of this position I will be a more aggressive buyer in front of 1187 with a 1173 stop.
Silver Rolling Contract
After I posted yesterday morning Silver continued to trade lower. I went long again at 16.95 and I will leave a 16.45 stop on this position. If Silver breaks 17.50 I will add to my position and I will then raise my stop to 17.10 on the two trades.
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