US Equity markets rallied by 1% yesterday despite the very weak revision to GDP which came in at 1.8% from 2.4% previously. Markets took the weak GDP as a sign that the Fed will be slow to taper the asset purchase programme as the old theme of bad news is good for the markets continues. Bond Yields were lower on this news and the markets were also helped by a variety of comments from central bankers that have gone some way to soothe nerves regarding the end of the ultra easy monetary policies around the globe.
ECB President Dragi added to his comments from Tuesday when he said the OMT policy is even more necessary today and he reiterated that the ECB stands ready to act when needed and that an exit from easy policy settings remains distant. We also had Richmond Fed President Lacker, a noted hawk who opposed QE3 from the outset, saying that the Fed is nowhere near shrinking its balance sheet and that markets may have got a bit ahead of themselves albeit he offered public support for the notion of tapering bond purchases. Finally David Miles from the Bank Of England, who has been dissenting from the consensus and favours more QE, reiterated that stance yesterday.
Today is one of the busiest days for economic data this month. This morning we have Euro-Zone Business Climate and Industrial Services and Consumer Sentiment Surveys for June as well as German Unemployment and UK GDP. This is followed in the US by the Weekly Jobless Claims, Personal Income/Spending, Pending Home Sales, Kansas City Manufacturing Activity and the PCE Deflator. Later this afternoon the Fed’s Powell and Lockhart speak on Monetary Policy.
September S&P 500
The bounce higher in the S&P continues as the market has now retraced almost 50 handles of the 100 handle sell-off that we had over that last week. As I said yesterday this is a seasonally very strong time of the year with month-end and quarter-end tomorrow ahead of the US ‘4th July’ Holiday next week.
The market worked well yesterday and I was able to cover my 1576 long position at 1591 and I am now flat. It has now left two gaps – from yesterday we have an open gap from 1577/1588 whilst from last week we still have a gap from 1622 which I am hoping will be filled next week and will set up a good opportunity to go short. The McClellan Oscillator improved to -50 yesterday but is still in negative territory. Today I will be a small seller on any rally to 1607/1612 with a 1614 stop. If I am taken short and subsequently stopped out I will be a very aggressive seller on any further rally to 1619/1624 with a 1628 stop. I will also be a small buyer on any dip to 1582/1588 with a 1576 stop.
Euro/USD
The Euro dropped down to my 1.3010 buy level and I am still long, in small size This 1.3000 level is key and as we are at the bottom on the Bollinger Band and the Williams Index has started to turn up. I will hold this position with a 1.2975 stop. A break and close below 1.3000 will be bearish. I will still leave my sell level the same as yesterday from 13120/1.3150 with a 1.3170 stop. One lesson from last week is not to chase the market and if you miss a trading opportunity we must be patient as, given this volatility, there will be plenty of other opportunities coming along.
September DAX
Unfortunately the Dax just missed my buy level as just as I posted yesterday Dragi came out with his ‘we will do everything’ comment to support the markets and the Dax rallied hard. Today I will be a buyer on any dip to 7870/7900 with a 7850 stop. I do not want to be short given the fact it is month end tomorrow as I look for the market to trade higher setting up a better short opportunity next week.
September FTSE
The FTSE traded up to my 6130 sell level yesterday. I am disappointed that the FTSE has not left a sell extreme from this resistance area and given the fact it is month end tomorrow I will lower my stop to 6158 which is just above the overnight high. I will also be a buyer on any dip to 6070/6100 with a 6055 stop.
September BUND
The Bund plan worked well yesterday as I was able to cover my 140.40 long position at 141.00 and I am now flat. I still like the Bund and I will use any sell-off to 140.40/140.70 to reset my long position.
Silver Rolling Contract
No change as I am still long at 18.85 with the same 18.50 stop. The Daily Sentiment Index has dropped to just 2% bulls as pessimism has now reached an extreme and prices are rapidly approaching the start of a rally. Silver is now down a whopping 63% over the past two years. If I am stopped out of my position I will look to reset my long position on any further dip to 18.20 with a 17.50 stop.
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