The big news event since I posted 24 hours ago was President Trump imploring Republican Senators to forgo their Autumn recess (already pushed back two weeks) in order to repeal and replace Obamacare. There is a fat chance of that happening, and markets should already be moving on to fretting over whether there will be any movement on the debt ceiling before the scheduled mid-August recess or whether we are going to the wire in September. It is hard to bet against the latter, in which case a fresh source of US Dollar weakness could be presenting itself before too long.
To mark my 1375th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 30 points yesterday and is now ahead by 700 points for July, having made 1023 points in June, 1071 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
Markets have largely paused for breath, with US Treasury yields flat-lining and the US dollar ever so slightly firmer. The latter is purely on the back of a small pull-back in EUR/USD in front of today’s ECB Meeting which is the main event of the week. This has not prevented the mighty Aussie dollar inching ever closer to the 80 cents level, up half a percent on this time yesterday and pushing above 0.7950. Either this morning’s local Employment data or a stronger Euro out of the ECB could provide the catalyst for a test of this big psychological level. We can’t now bet against it.
US stocks have continued to power ahead with both the S&P 500 and the NASDAQ just posting new record closing highs. In the S&P, homebuilders and energy stocks have led the gains, the former after June Housing Starts comfortably exceeded expectations (+8.5%m/m with upward revisions to back data) and energy stocks after oil rallied on news from the US Department of Energy of a fall in crude and crude products of 10.183m bbl. including a 4.727mn draw on crude oil. IBM was a drag, down over 4% after disappointing earnings.
Of some note is that the ongoing US equity market rally has not seen a fresh fall in the VIX after Friday’s fall to 9.5 and its lowest close since 1993. This does suggest there might be an absolute floor around this level, but while it stays here it will self-evidently remain a supportive factor for the Australian Dollar.
In commodities, while the whole oil and gas complex is up strongly after those DoE stats (including crude oil up 70-80 cents) other commodities have not fared so well, precious and industrial metals all down smalls. In contrast, iron ore continue to push higher, up another $1.40 overnight and to above $70 for the first time since April 11. While the direct correlation between the iron ore price and the AUD is surprisingly weak, you’ll be able to read as much as you can stomach elsewhere today about how the $70 iron ore price is now driving the Australian Dollar onwards and upwards.
This morning on the Economic Front we have ECB Current Account at 9.00 am and this is followed at 9.30 am by UK Retail Sales, and at 11.00 am by CBI Business Optimism. At 12.45 pm we have the ECB Governing Council (GC) meeting where there will be no formal change in policy, but the market is split on whether the GC will signal that it no longer has a bias to extend the quantum or duration of its current €60bn per month QE buying programme (a prelude to signalling in September than it intends to start tapering its QE buying from early 2018). If it does (I think it will), expect some further strengthening in the Euro, however innocuous this change might seem. If it doesn’t, the EUR should drop back a bit. This is followed at 1.30 pm by the Dragi press conference. At the same time the US will release its Weekly Jobless Claims and the Philly Fed Business Outlook. Finally at 3.00 pm we have Euro-Zone Consumer Confidence and US Leading Index.
September S&P 500
As the S&P closed at yet another record high, investors are complacent to the possibility that the stock market could decline. Market Vane’s Bullish Consensus polls newsletter writers currently stand at 69% bullish. The highest level of bullishness over the past four years was at the March 1, top for both the S&P and Dow at 70%. On top of this the three-day average of the CBOE Volatility Index (VIX) dropped to 9.74 on Tuesday, which is the second lowest level in history. The lowest historical three-day average occurred on December 27, 1993, several weeks before the January 1994 top that led to an 11% Dow decline to April 1994. I am not saying that the market is going to crash from here but history does show us that low periods of volatility precede high periods of volatility and the current low period has persisted long enough for traders to believe strongly that it will continue. Of course we have to patient and wait for a sell extreme that lasts for more than a few days before we can get excited about the potential of a large downside move. Yesterday after my Platinum Service made a hard earned 30 points I emailed my Platinum Members to move their sell level higher in the S&P as I wanted to protect those gains. Just before the close the market traded higher to my 2471 sell price. I am still short with a T/P level of 2468 as I want where possible to be flat ahead of Dragi at 1.30 pm. As mentioned in another email to my Platinum Members I will only add to this position on any move higher to 2478 with a 2482 stop. If I manage to exit this short position at 2468 I will again look to sell the S&P on any subsequent move higher to 2476/2482 with a 2487 stop. I will also raise my buy level slightly to 2450/2456 with a 2455 stop.
EUR/USD
Having almost got stopped out of my short 1.1530 position on Tuesday, I was grateful to see the Euro trade lower to my revised 1.1515 T/P level and I am now flat. Today I will stay flat the Euro until we get the Dragi press conference and if the market rallies I will be a seller from 1.1580/1.1630 with a 1.1670 stop. The Euro has strong resistance at the May 2016 high at 1.1610, which is also a 22 month trend line resistance in severe overbought conditions. I still do not want to be long the Euro at this time.
September Dollar Index
No change as I am still a buyer of the Dollar on any dip lower to 93.90/94.30 with the same 93.55 stop. The Daily Sentiment Index reading closed at just 8% bulls on Tuesday. In my opinion sentiment remains compatible with the start of an advance. Remember look what has happened to silver any time the DSI slips to single digits. It may take a few more days but eventually the Dollar will rally.
September DAX
Unfortunately the DAX just missed my 12390 buy level with a 12408 low print before rallying strongly and I am still flat. Today I will leave my buy range unchanged from 12330/12390 with the same 12285 stop. I still do not want to be short the DAX at this time.
September FTSE
The FTSE also just missed my buy range yesterday before accelerating higher on the back of the weaker Pound. The FTSE has strong resistance from 7360/7390 which the market is testing as I write this commentary. Today I will move my buy level higher to 7300/7330 with a 7265 stop. I expect the FTSE to break this resistance and for that reason I do not want to be short the market at this time.
Dow Rolling Contract
As I am already short the S&P I will now raise my sell level in the Dow to 21710/21770 with a 21820 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any move higher to 21850/21920 with a 21980 stop.
September BUND
Yet again the Bund missed my sell level before rallying strongly and I am still flat. The Bund has strong resistance from 162.25/162.60 and I will be a seller here with a 162.90 stop. Ahead of Dragi and the ECB I do not want to be long the market at this time.
Gold Rolling Contract
In contrast to Silver, Gold has been in one big sideways trend for most of this year. I am still flat and today I will leave my buy level unchanged from 1220/1228 with the same 1213 stop.
Silver Rolling Contract
My Silver plan worked well yesterday with the market trading lower to my 16.20 buy level before rallying to my revised 16.35 T/P level and I am now flat. Silver has now closed higher for six of the past seven trading sessions since we made the low at 15.17. Today my only interest in buying the market is on a dip lower to 15.80/16.10 with a 15.50 stop.
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