More disappointing earnings reports have seen the Dow lose further ground yesterday with IBM leading the way as its share price fell 3.4%. Most European markets were also lower yesterday and that theme is continuing this morning after China reported overnight that its manufacturing unexpectedly contracted. The preliminary reading for the Purchasing Managers Index fell to 49.5 from 50.5 last month. Any reading below 50 indicates contraction.
In the UK the Bank of England released its latest Minutes from the last MPC Meeting where they voted 9-0 to keep policy unchanged in January as expected. The Committee noted that there was no immediate need to adjust policy if a 7% jobless threshold was reached, an important point given that yesterday’s labour data showed unemployment falling to 7.1% in December versus 7.3% the previous month. This latest data will again raise speculation that the Bank of England will have to tinker with its forward guidance at the upcoming February Inflation Report on Feb 12. UK Gilt yields rose 8bps across the curve and Sterling had a very strong day with Cable (USD/GBP) rising to 1.6570 on this news.
This morning on the economic front we have UK CBI Reported Sales at 9.30 am followed at 10.00 am by German and Euro-Zone PMI Manufacturing Services. This is followed at 1.30 pm by the latest US Weekly Jobless Claims, House Price Index and Existing Home Sales. The US will also release its PMI for January.
March S&P 500
The S&P worked well yesterday as the market was trading at my 1836 buy level as I posted yesterday morning and after a nice rally I was able to cover this position at 1841 and I am now flat. The March contract traded up to a high of 1844 on the back of the good results from Netflix but the market got hit hard overnight on the back of the weak Chinese Manufacturing which showed contraction with a reading below 50. As I mentioned yesterday morning the key level for the S&P going forward is 1826 and today I will be a small buyer from 1826/1830 with a 1823 stop. I still believe that we will get a rally into next Wednesday’s FOMC Meeting and this is why I am loathe to go short at this time. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1810/1814 with a 1808 stop which is just below the low made ten days ago.
Euro/USD
Shortly after I posted yesterday morning the Euro traded down to my 1.3540 buy level before trading higher and enabling me to cover this position at 1.3570 and I am now flat. The Euro has been trading in a very narrow range all week and we should see some movement today after the Euro-Zone releases its latest PMI Reports. Today I will be a small buyer on any dip to 1.3480/1.3510 with a 1.3460 stop. A break and close below 1.3480 will start to see me look to set up shorts.
US Dollar Index
No change as the Dollar Index continues to inch higher. I am still long at 80.95 and I will leave my stop the same at 80.85. Remember a break and close over 81.50 will be very constructive for the Dollar.
March DAX
The Dax also worked very well yesterday as the market traded down to my 9710 buy level before having a nice rally and I was able to cover this position at 9750 and I am now flat. The Dax is opening lower this morning and it looks like its is going to take a lot of good news to break the 9800 resistance level. Today I will lower my sell level to 9740/9770 with a 9785 stop. My only interest in buying the Dax today is on a dip to 9610/9630 with a tight 9595 stop.
March FTSE
The FTSE finally stopped me out of my long 6760 position at 6775 and I am now flat. Today I will still be a buyer on any dip to 6720/6745 with a 6695 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
For a change the Dow worked well yesterday as shortly after I posted the Dow was trading at my 16370 buy level before trading higher allowing me to cover this position at 16410 and I am now flat. The Dow has got hit hard overnight on the back of the weak China Manufacturing data and is approaching its early January lows. The Dow is trading at the bottom of its Bollinger Band but not the Williams Index and today I will be a small buyer on any further dip to 16240/16270 with a 16210 stop. Given how oversold the Dow is trading I do not want to be short the market at this time.
March BUND
Despite the weak Equity markets this morning the Bund is struggling to trade higher. Today I will be a small seller on any rally to 141.70/141.90 with a 142.10 stop.
Gold Rolling Contract
No change as my only interest in buying Gold is on a dip to 1215/1222 with a 1208 stop.
Silver Rolling Contract
Silver just missed my 19.60 buy level with a 1964 low and I am still flat. I am not going to chase the market here and I will leave my buy level the same at 19.30/19.60 with a 19.10 stop.
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