Equity markets were slightly weaker yesterday on continuing uncertainty about when the Fed might introduce ‘QE Tapering’. Also adding to the nervousness were rising fears about the US Budget/Debt and data which was unsurprising but confirmed some slowing in US activity.The budget needs to be passed by the end of September to prevent a Government shut down. The Republican controlled House has passed a Bill that strips out provisions of ‘Obamacare’ but this is unacceptable to the Democrat controlled Senate, thus leading to a stalemate. Meanwhile Treasury Secretary Jack Law said that market confidence was too high that a deal would be reached on the debt ceiling. The deadline for the Government staying below the debt ceiling has been put at October 17 at which time the Treasury will run out of options and may have to default on debt servicing.
US data showed New Home Sales and Durable Goods Orders both better than expected but the trend in both has slowed from the first half of the year. The MBA Mortgage Applications Index rose by 5.5% after 11.2% last week confirming a rebound since mid-September as Mortgage rates fell after the Fed’s ‘non tapering’ decision. 10 Year Treasury Bond Yields have fallen from a high of 3% last week to 2.61% this morning.
This morning on the economic front we have UK GDP and the Euro-Zone M3 (Money Supply). This is followed at 1.30 pm by the US Weekly Jobless Claims, Pending Home Sales and GDP. At 3 pm we have the Kansas Fed Manufacturing Activity and later the Fed’s Kocherlakota speaks on the economy.
December S&P 500
Yesterday was the fifth consecutive lower close for the Dow and S&P which is the first such down streak for the S&P since the final trading days of 2012. As I said yesterday I still believe that we will get a debt deal as the ramifications of not getting a deal are too great and will lead to a meltdown in equity markets and the US Dollar.
Yesterday the S&P plan worked well as the market traded down to my 1687 buy level after lunch and following a nice rally I was able to cover this position at 1693 and I am now flat. Today I will raise my buy level to 1685/1690 with a 1682 stop which is just below yesterday’s low. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1670 with a 1665 stop. I still do not want to be short the S&P at this time.
Euro/USD
The Euro traded up to my 1.3520 sell level yesterday and I went short. I have decided that I am now not comfortable in being short the Euro and I have covered this position this morning at the same price level and I am now flat. I still feel the Euro will trade back to the 1.3700 highs made in February before real sellers return to the market. Today I will be a buyer on any dip to 1.3460/1.3480 with a 1.3440 stop. A break and close over 1.3550 will be very bullish.
December DAX
The Dax also worked well yesterday as the market traded down to my 8625 buy level before having a nice rally and I was able to cover this position at 8665 and I am now flat. I still like the Dax and today I will be a buyer on any dip to 8610/8630 with a 8580 stop. I still do not want to be short the Dax at this time.
December FTSE
The FTSE also traded down to my 6510 buy level yesterday and I went long. I am still long and I will raise my stop to 6495 on this position. I am disappointed that the FTSE has not had a larger rally from the 6500 support zone and I will give it one more day to leave a buy extreme. A break and close below 6480 will be very bearish.
In addition, I have been stopped out of my short 2120 FTSE/DAX spread at 2140 and I am now flat.
December 10 Year Treasury Bond
I still do not want to chase this market higher and I will leave my buy level the same at 125.30/125.60 with a 125.10 stop.
December BUND
The Bund just missed my sell level yesterday. I will leave my sell level the same at 140.10/140.40 with a 140.55 stop. I do not want to be long the Bund at this time.
Gold Rolling Contract
Gold performed really well yesterday as the market traded down to my 1318 buy level before having a nice rally and I was able to cover this position at 1334 and I am now flat. Gold is trading very well as the market is making higher lows which is bullish and today I will be a buyer on any dip to 1320/1328 with a 1314 stop which is just below yesterday’s low. I do not want to be short Gold at this time.
Silver Rolling Contract
No change as I am still long at 21.50 with the same 21.30 stop.
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