The US Federal Reserve Minutes from the January 29-30 Meeting suggest that tapering will continue at a $10 billion pace at upcoming meetings unless the economy deviates substantially from its expected path. While a few participants thought that the Fed Funds rates should rise relatively soon the majority are clearly against such action. The pace of economic growth is expected to slow to a more moderate pace after strengthening in the second half of 2013 whilst emerging market developments also pose some downside risk to the outlook.
The minutes also suggest that the Fed will change its forward guidance soon as the unemployment rate is approaching 6.5% but members could not agree on whether a quantitative or qualitative approach should be used. Meanwhile US Housing Starts were very poor, falling a massive 16% in January versus -5% expected but markets initially shrugged them off as another weather related decline. The Dow and S&P both fell 0.6% yesterday and in the process both generated a key day reversal to the downside. This theme has continued overnight as China released its PMI which fell to a 7 month low resulting in European Equity markets opening lower this morning.
In the UK we had no surprises from the Bank of England Minutes but Unemployment, which was reported yesterday morning, came in weaker than expected at 7.2% versus 7.1% last month.
This morning on the economic front we have UK CBI trends at 9.30 am followed by Euro-Zone Manufacturing Services data at 10.00 am which will be closely watched by the markets. Later at 1.30 pm we have the US Weekly Jobless Claims and CPI. This is followed by Consumer Confidence and the Philly Fed both very important pieces of data.
March S&P 500
The S&P had a wild trading session yesterday and in the process generated a Key Day Reversal as the market made a new high above Tuesday’s high and then made a lower low before closing on the lows. This is the second Key Day Reversal that we have had in a week which is very unusual and potentially very bearish. As I mentioned over the last few days 1802 is key support and a break and close below here will very bearish while yesterday’s high at 1845 will also be very crucial for the bulls going forward.
After I posted yesterday morning the S&P was trading at my 1833 buy level and after a nice rally after the US opened I was able to cover this position at 1839 and I am now flat. The S&P futures markets are opening very weak this morning on the back of the China PMI which came in weaker than expected and the market is trading with a large Gap down from last night’s close. This morning I will be a small buyer from 1813/1818 with a 1808 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1802 with a 1799 stop. If the market breaks 1798 I will go short in small with a 1807 stop. I will also be a seller on any rally back to 1832/1836 with a 1839 stop
Euro/USD
No change as I am still a small buyer on any dip to 1.3660/1.3690 with a 1.3640 stop. I will also lower my sell level to 1.3780/1.3810 with a 1.3835 stop.
US Dollar Index
The US Dollar Index just missed my 79.85 buy level with a 79.93 low before trading higher. I really like the US Dollar Index as it is trading at the bottom of the bollinger band and looks to me that it wants to break higher. Today I will raise my buy level to 79.90/80.20 with a 79.70 stop.
March DAX
The Dax plan worked well yesterday as both my buy and sell levels were hit. After I posted yesterday morning it traded down to my 9600 buy level before having a nice rally enabling me to cover this position at 9650. The market then traded up to my 9670 sell level with a 9701 high and after a nice sell off into the close I was able to cover this position at 9595 and I am now flat. This morning the Dax is testing the key 9530/9550 support zone and if it breaks 9525 I will be a seller with a 9560 stop. I do not want to be long the Dax at this time.
March FTSE
The FTSE is acting better that the other major indices this morning having been the opposite way round so far this year. The FTSE plan worked out very well yesterday as the market traded up to my 6775 sell level before having a nice sell off and I was able to cover this position at 6730 and I am now flat. Today I will be a small buyer on any dip to 6685/6705 with a 6660 stop. I do not want to be short the FTSE at this time.
Dow Rolling Contract
Just like the S&P the Dow also had Key Day Reversal yesterday after initially trying to take out the key 16210 resistance level and the 14 year trendline. It traded up to my 16190 sell level and I went short in small size. After the initial sell off yesterday evening I covered half of this position at 16080 and I will leave a 16050 stop on the other half. To me this Dow looks in real trouble as the price action has been very weak this year.
March BUND
After I posted yesterday morning the Bund traded down to my 143.75 buy level and after a nice rally this morning I have covered this position at 144.05 and I am now flat. I still like the Bund and today I will be a small buyer on any dip to 143.65/143.90 with a 143.50 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold is trading weaker this morning and so far has just missed my 1308 buy level. Today I will leave my buy level the same at 1302/1308 with a 1299 stop. I do not want to be short Gold at this time.
Silver Rolling Contract
Last night after the Fed released its minutes I was stopped out of the rest of my long 20.10 position at 21.40 and I am now flat. I still believe that Silver is a buy on dips and today I will be a buyer on any dip to 20.85/21.20 with a 20.55 stop.
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