The FOMC’s post-meeting statement published last evening proved to be more of a market-moving affair than many had anticipated. The US Dollar was sharply higher along with Treasury Yields especially at the front end of the curve whilst the stock market was in a head-spin: down, up, down, up whilst closing little changed from the pre-Fed levels.
The Fed knocked its QE3 asset purchase programme on the head but retained the ‘considerable time’ language to describe when the Fed Funds Rate might first rise after QE ends. However changes to the statement were tilted to the hawkish side. In particular, previous references to ‘significant underutilisation of labour resources’ was replaced by ‘utilisation of labour resources is gradually diminishing’. And while there was a sop to the recent decline in market based measures of inflation expectations, the statement notes that ‘survey based measures of longer term inflation expectations have remained stable’.
The FOMC also said that if incoming information indicates faster progress towards employment and inflation objectives than the Committee now expected, then increases in the target Federal Funds are likely to occur sooner than currently anticipated.
This morning on the economic front we have UK House Prices at 9.30 am. This is followed at 9.55 am by German Unemployment Rate. At 11.00 am we have the Euro-zone Economic Confidence and Business Climate Indicator. At 12.30 pm we have the US Weekly Jobless Claims and the very important GDP where the consensus is for a 3% rise. Finally at 2 pm we have German CPI which will also be closely watched by the markets.
December S&P 500
When I wrote yesterday’s commentary I did not have the official McClellan Oscillator reading for Tuesday’s close. When I discovered that it had closed at a very overbought +256 it made me more determined to short rallies rather than to buy the dip, as this market is extremely overbought. Shortly after the US markets opened the S&P rallied up to my 1985 sell level before having a nice sell-off ahead of the FOMC rate announcement which enabled me to cover this position at 1973 and I am now flat. After the Fed released its statement I just watched the two way price action without doing a trade. Today I will again be a seller on any rally back to 1978/1984 with a 1987 stop which is just above yesterday’s high. Again if I am taken short and subsequently stopped out I will use my 5 handle rule to go short again with a stop put in just above whatever new high is recorded. Given how overbought this market is currently trading I do not want to be long at this time.
Euro/USD
My fears that the ending of QE by the Fed would lead to a spike lower in the Euro certainly proved to be the case last night. Unfortunately the Euro just fell shy of my 1.2795 sell level before declining but at least I was already long the Dollar Index. I am still flat the Euro and today I will be a small buyer on any further dip to 1.2560/1.2590 with a 1.2530 stop. I will also lower my sell level in the Euro to 1.2680/1.2710 with a 1.2735 stop.
US Dollar Index
My long 85.30 Dollar Index position worked out well as shortly after the FOMC released it statement the Dollar spiked higher which enabled me to cover this position at 86.00 and I am now flat. I still like the Dollar and today I will use any retracement to 85.40/85.70 to reset my long position with a 85.10 stop.
December DAX
The Dax just missed my 9195 sell level with a 9160 high before following the US markets lower and I am still flat. Today I will lower my sell level to 9125/9155 with a 9180 stop. I will also be a small buyer on any dip to 8970/9000 with a 8940 stop.
December FTSE
Just like the Dax, the FTSE also just missed my sell level before trading lower and I am still flat. Today I will lower my sell level slightly to 6460/6490 with a 6520 stop. Given how overbought the FTSE is currently trading after its 400 point rally over the last two weeks I do not want to be long the market at this time
Dow Rolling Contract
By the time that I posted yesterday morning the Dow was trading at my 17020 sell level and after a nice sell-off I was able to cover this position at 16940 which more than made up the loss that I took on my short position on Tuesday and I am now flat. Today I will again be a small seller on any rally back to 17060/17100 with a 17140 stop. Given how overbought this market is currently trading and the fact that the McClellan Oscillator is showing such an overbought print I do not want to be long the Dow at this time.
December BUND
My fears that the Bond markets would sell-off after the FOMC ended QE3 put me on the defensive in my view of this market. However so far the Bund has held the key 149.80 support level and it will need a break and close below here for me to look to set up a short position. I am going to stay flat the Bund for today as I want to see how the market reacts to the German CPI when it is released this afternoon. However if the Bund breaks 149.80 I will go short with a tight 150.20 stop.
Gold Rolling Contract
Gold was hit hard after the FOMC Statement was released with the market eventually trading down to my 1213 buy level. I am still long and I will lower my stop on this position to 1199. If I am subsequently stopped out of this trade I will be a more aggressive buyer in front of 1183 with a 1169 stop.
Silver Rolling Contract
No change as I am still a small buyer from 16.85/17.15 with the same 16.45 stop. So far Silver is holding up better than Gold.
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