Wall Street having bought the rumour of a Fiscal deal on Monday also bought the fact on Wednesday. The S and P 500 added 2.0% to Mondays 1.7% gain. The Dow also added nearly 2% while the Nasdaq rose by almost 3%. No-one seems to be under any illusion that we can avoid a re-run of the past few weeks including rankling over the debt ceiling. Senate Minority Leader, McConnell, who helped broker the deal passed by Congress early yesterday morning said last night that the debt ceiling debate is a chance to confront spending. But the view that the risk rally has some more legs in the early part of January is also very prevalent. Benchmark Core Bond Yields have predictably spiked in both Europe and the US with the 10 year Treasury Yields 8 bps higher and German 10 years up a full 13bps. In this context the surprise is the Euro has actually lost ground versus the Dollar.
On the Economic Front the US Manufacturing ISM data rose to 50.7 from 49.5 last month while German PMI came in weaker than expected. This morning we have German Unemployment and Euro-Zone Money Supply followed in the US by the Weekly Jobless Nos and the ADP Employment data which will be closely watched ahead of Non Farm Payrolls tomorrow.
March S&P 500
Optimism increased several notches today well above the fever pitch reached last Monday as the S&P took out its December 18th high of 1448 with the March contract closing at 1457. 1473 is the cash high from the September QE3 announcement and should provide good resistance. However a break and close over the level will be very bullish. After I posted my second update yesterday afternoon the market topped at 1450 before falling back to 1445 where it traded for a long time before having the big spike in the last hour of trading. I was taken out of my 1447 short at 1452 and I am now flat. The S&P is still at the top of its Bollinger Band and the Williams Index and today I am a small seller from 1459/1464 with a stop at 1468 which is above September’s Futures Market high. I do not want to be long at this time and thankfully at least we have not been short the market in this roller coaster environment.
March DAX
The Dax also had a large move up yesterday but to me seems to be running out of steam at the 7800 area. We are also at the top of the Bollinger Band and Williams Index and this morning I am a seller from 7810/7840 with a 7860 stop. I am only trading in small size given the volatility.
Euro/USD
The Euro/USD just missed my 1.3300 sell level before falling hard for the rest of the day. The Euro may be providing the first sign that the stock market rally is a fake out as sellers sold the Euro after trading up to 1.3305 last night. The Euro traded down to my 1.3395 buy level and unfortunately I was stopped out overnight at 1.3165 and I am now flat. I am very surprised how weak the the Euro is given how strong Equity markets are and today I am a seller on any rally back to 1.3180/1.3210 with a 1.3230 stop. I am still convinced that the Euro is trying to put in a long term top versus the US Dollar.
March FTSE
The FTSE also gapped up higher yesterday morning and kept going. It has strong resistance between 6010/6030 and I am a seller here with a 6040 stop. I do not want to be long at this time.
March BUND
The Bund had one of its biggest falls in a long time yesterday and the market is now very oversold. I am a small buyer from 143.70/144.00 with a 143.50 stop.
USD/JPY
No change from yesterday as I am still a seller from 8750/8780 with a 8805 stop.
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