Investors looking for clues on US Monetary Policy would have taken very different messages from Fed Chairman Bernanke’s prepared testimony and his subsequent Q+A session yesterday. The formal presentation warned that a premature tightening of Monetary Policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Yet in response to questions from Congressmen, we heard that if we see continued improvement and we have confidence that it’s going to be sustained, then we could, in the next few meetings take a step down in our pace of asset purchases. Critics could note that neither Mr Bernanke nor his FOMC Committee really know what they want and have been just as guilty of reacting to the latest economic releases as the financial markets that they seek to influence. The bottom line is we have a data-dependent Central Bank which has a bias to scale back easing and which leaves financial markets poised for plenty of volatility around top-tier data releases such as Payrolls, ISM, Industrial Production and Retail Sales. The Dow and S&P both had ‘key day reversals’ yesterday and are both well off in trading this morning. The Nikkei got hammered overnight as the Japanese market had its biggest fall since the aftermath of the March 2011 Tsumani and nuclear disaster. Japanese 10 Year Bond Yields touched 1% and the Yen rose sharply against the US Dollar.
Today is a very busy day for economic data as this morning we have Euro-Zone PMI Manufacturing and PMI Services. At 9.30 am we have UK GDP and Noyer, Dragi and Lilkanen from the ECB are all due to speak today which will probably lead to more volatility. Later from the US we have the Weekly Jobless Claims, House Price Index, New Home Sales and the Kansas City Manufacturing Activity.
June S&P 500
The reversal that I have been looking for in the S&P finally happened yesterday as all the sentiment readings that I have been talking about over the last two weeks came to fruition. Yesterday was a classic ‘key day reversal’ and new members can go to my Education Tab on the website for a full explanation. The break of 1659 was key as after we made a new high at 1685 the market then reversed lower to take out the previous day’s low which led to market accelerating lower. I had planned yesterday to be flat going into Bernanke’s Speech and then to react afterwards. I went short the S&P at 1683 and took profit at 1665. I also planned to sell the S&P on any break of 1659 which I did and I have taken profit this morning at 1638 and I am now flat. The 1630 level is key support and given the potential Opening Gap lower we have in place as I write this commentary I would expect the 1630 level to hold for the moment. Today I am a small buyer from 1634/1639 with a 1628 stop. I will also look to sell the S&P on any rally back to 1654/1658 with a 1661 stop. Remember every sell off this year has been met by stronger buying and we have not had two hard down days in a row yet.
Euro/USD
The Euro dropped down to my 1.2840 buy level. I am still long and as I only bought in small I will lower my stop to 1.2790 as this 1.2800/1.2840 is good support. If I am stopped out I will look to buy the Euro again in front of 1.2750 with a 1.2730 stop.
June DAX
What a day for the Dax as market rallied hard after Bernanke’s testimony only to get hammered after his Q+A session. I sold the Dax at 8520 and unfortunately I got stopped out of this position at 8540. This morning the Dax has gapped lower, following the Nikkei’s lead overnight, and I plan to buy between 8280/8320 with an 8250 stop – I will only take a small position given the volatility.
June FTSE
The FTSE finally gave up some ground last night and this morning and one thing about bull markets in Equities is that they do not give up their gains easily. Today I am a buyer in the FTSE on any dip to 6660/6690 with a 6640 stop. Once again, I am only trading in small size.
June BUND
I was so surprised to see how weak the Bund was trading given how weak Equities were and for this reason I bought the Bund at 144.35 and I have taken profit this morning at 144.85 and I am now flat. As I said yesterday I do not want to be short the Bund and this applies today as well. I will still look to reset my long Bund position on any dip to 144.10/144.40 with the same 143.95 stop.
June Nasdaq 100
Very frustrating as I was stopped out of my 3030 short position at 3050 and the market never reached my 3060 sell level before falling hard. Today I will look to go short again on any rally back to 3000/3015 with a 3055 stop which is just above yesterdays high.
Silver Rolling Contract
What a wild day Silver had yesterday. The market dropped down to my 22.20 buy level last night and I am now long. I will leave my stop the same at 21.75. If I am stopped out I will look to reset my long position on any dip to 20.90/21.20 in small with a 19.90 stop.
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