US stocks have taken the latest rise in Bond yields on the chin, though this cannot disguise the fact that the pull back in the S&P from above 2700 to below 2620 since mid-April has gone hand in hand with the break up in 10 year Treasury yields from just above 2.8% to now 3.03%. It has also come as the vast majority of incoming S&P500 earnings (and revenue) have exceeded street estimates (Ford and Twitter the latest two) but with suggestions from several household names (e.g. Caterpillar on Tuesday) that Q1 might have represented a near-term high water mark for revenue and EPS growth.
To mark my 1580th 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. To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total. This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 110 points yesterday and is now ahead by 1494 points for April, having made 1760 points in March, 2256 points in February, 879 points in January, 946 points in December, and 823 points in November Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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The fall in AUD/USD during this time, from above 0.78 to a new 2018 low of 0.7552 needs to be seen largely in the context of US dollar strength, though both AUD and NZD have underperformed most major currencies in the past week. This owes something to the modest decline in risk sentiment (VIX is back nearer 20 than 15) and generally if not universally, weaker commodity prices. The Australian Dollar is now within half a cent of challenging its December 2017 low of 75 cents (It was last below 0.75 in June 2017). This is as significant level that I would expect to provide more formidable support than either the 0.7650 recent range lows or the 0.76 level. Current levels might provide attractive to local exporters today, who were away from the market yesterday. We will see.
An interesting footnote: when US 10 Year Treasuries were last above 3% in 2014, the Fed Funds rate was 0.25%, the Unemployment Rate was 6.7% and the Fed’s core PCE measure of inflation was running around 1.5%. Fast forward to now, and the Fed Funds rate is 1.75% and likely to be 2% by the end of June, the Unemployment Rate, at 4.1%, is the lowest since 2000, and core PCE is expected to be 2% when the data is released next week. Add to that the fact that the Fed is reducing, rather than increasing its holdings of US Treasuries, and the foundations for US rates above 3% are far stronger this time around than they were in early 2014.
Of some note in analysing the last 3-4 bps of the run up in Treasury yields is that they have not been driven by ‘’break-evens’’ or the inflation expectations component of yields, which of late have gone hand in hand with the rise in oil prices that has seen Brent crude rise from $67 to $75. Crude has actually eased back in the last 24 hours, to below $74, seemingly on hopes that French President Emmanuel Macron’s pleas to President Trump not to revoke the prevailing nuclear deal with Iran will have influence (this after Trump on Tuesday called the deal ‘’insane’’). Rising real US bond yields are better for the US dollar than a largely inflation-driven rise in nominal yields.
Meanwhile there has been little or no economic news flow over the past 24 hours as we wait for US GDP tomorrow.
This morning on the Economic Front we already had the release of the German GFK Consumer Confidence which came in as expected with a 10.8 print. Next we have the UK Finance Mortgage Applications and the CBI Distributive Trades at 9.30 am and 11.00 am respectively. This is followed by the main event of the day namely the ECB Meeting at 12.45 pm. This is an ‘’interim’’ ECB meeting with no new staff forecasts and I do not expect any key policy wording changes. Ok keen interest in the press conference at 1.30 pm will be Draghi’s take on the recent softer Euro-Zone Economic data prints. The ECB will wait until (at least) the 14 June meeting to give updated guidance on the APP. A more dovish than expected Draghi could cement the US Dollar Index break above 91 and push EUR/USD down towards 1.20. Also at 1.30 pm we have the US Weekly Jobless Claims, Durable Goods and Wholesale Inventories. Finally at 4.00 pm we have the Kansas City Fed Manufacturing Index.
June S&P 500
As I emailed my Platinum Members yesterday that sometimes trading can be a game of small margins which certainly was the case with the S&P frustratingly missing my 2610 initial buy level with a 2611 low print before rallying to an overnight high at 2654.50. A lot of Members do buy a small stake in front of my buy ranges to allow for these ‘’margins’’ and if you did this yesterday then this trade worked well. I am still flat as the S&P also fell shy of my 2655 sell level before trading lower this morning on the back of the weaker Chinese Market. Yet again the S&P saw massive buying ahead of its 200 Day Moving Average. Given the amount of times that this key level has held I do expect over the next few weeks that we will take out this level and this could result in the start of a major bear market with the February lows at 2530 the next target. Today I will raise my sell level slightly to 2659/2669 with a 2676 stop. Even though yesterday saw a positive turnaround I am reluctant to chase this market higher and today I will only raise my buy level slightly to 2605/2615 with a 2598 stop.
EUR/USD
The Euro just missed my 1.2150 buy level with a 1.2158 low print before having a small rally as we wait for Dragi’s press conference at 1.30 pm. I will now lower my sell level slightly to 1.2240/1.2280 with a 1.2320 stop. I am also going to lower my buy level to 1.2060/1.2100 with a 1.2025 stop. A break and close below 1.2180 for a few days is a long-term sell signal.
June Dollar Index
I am still flat the Dollar which has continued to rally as expected. Today I will now raise my buy level to 90.10/90.50 with a 89.70 stop.
June DAX
My DAX plan worked well yesterday with the market trading lower to my 12340 buy level before rallying to my 12385 T/P level and I am still flat. This morning the DAX is back on the defensive. However ahead of the ECB Meeting I am reluctant to go short. The next important support for the market is at 12250 and today I will look to buy the market on any dip lower to 12210/12280 with a 12165 stop.
June FTSE
Yesterday the FTSE missed my 7260 buy level with a 7279 low print before eventually following the US Indices higher and I am still flat. The FTSE is severely overbought and due a correction but I am still reluctant to go short. Today I will lower my buy level slightly to 7210/7250 with a 7170 stop.
Dow Rolling Contract
The Dow had another wild trading session yesterday with the market bouncing over 350 points off its early afternoon low print. Late last night the Dow eventually traded higher to my 24170 sell level before selling off over 100 points this morning. As I had close by sell levels in both the S&P and NASDAQ I did not want to have the potential of having three short positions overnight and I covered my Dow short position at 24159 and I am still flat. I would expect that most of you would have made a nice gain if you left this order on overnight given the subsequent move lower this morning. Today I will again look to sell the Dow on any rally higher to 24250/24400 with a 24495 stop. My only interest in buying the Dow is below the market at 23540/23680 which is where we have the 200 Day Moving Average.
June NASDAQ
Yesterday the NASDAQ traded lower to my 6440 buy level before rallying overnight to my 6600 sell level with the points gained yesterday making up for my NASDAQ loss on Tuesday. After I bought the NASDAQ I covered this position at 6464 while this morning I covered my short position at my revised 6570 T/P level and I am now flat. Today I will again look to sell the market on any rally higher to 6635/6680 with a 6720 stop. I will also be a small buyer on any dip lower to 6425/6485 with a 6380 tight stop.
June BUND
Unfortunately the BUND just missed my 157.35 buy level with a 157.44 low print before rallying as expected to the 158 level this morning. Given the extent of the sell-off ahead of the ECB Meeting I cannot see that Dragi is happy with this move and I would expect him to try and talk long-term rates lower for now. With this in mind I will now raise my buy level to 157.20/157.60 with a 156.80 stop. The Bund has strong resistance from 158.75/159.05 and I will be a seller in this area with a 159.35 tight stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1303/1311 with the same 1296 stop.
Silver Rolling Contract
Silver has taken a beating over the past week falling from a high of 17.39 to yesterday’s low at 16.48. I am still long at an average rate of 16.85 with the same 16.35 stop. I am not happy with this price action and even though I think the downside in Silver from here is limited I will use any rally higher to 16.80 to exit my position. If this happens I will be back with a new update for my Platinum Members.
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