As expected the US FOMC continued its tapering program, announcing a further $10 billion taper down to $25 billion and remaining on track to end its QE stimulus program in October. The accompanying statement was relatively dovish on the labour market, with the Fed keen to retain the message that rate hikes are some time away. They said that ‘a range of labour market indicators suggest that there remains significant underutilisation of labour resources’. This is despite the unemployment rate running at 61% and Jobless Claims last week hitting an 8-year low. In addition, Q2 GDP data was released yesterday which showed a 4% annualised gain, beating expectations of 3.0% whilst Q1 was revised to -2.1% from -2.9%.
In June the Fed said that the labour market ‘generally showed further improvement’ but this line was removed in today’s release. But there was still enough reason to taper again as they remain confident enough that the underlying economic strength will lead to ongoing improvement in activity and employment while Inflation risks have also risen as ‘the likelihood of inflation running persistently below 2% has diminished somewhat’.
Equity markets had a soft day overall. They lost ground after the US economic data but had a small boost after the dovish FOMC release with the S&P closing slightly up whilst the Dow again struggled, closing down 0.2%. The US Dollar continued its recent strong run with the Dollar Index now testing the key 81.50 resistance level.
In other US data the ADP Employment rose 218k in July, just under the 230k expected, so no reason for markets to move from their 230k expectation for tomorrow’s payrolls.
This morning on the economic front we have German Unemployment at 9.00 am. This is followed at 10.00 am by German and Euro-Zone CPI. At 1.30 pm we have the US Weekly Jobless Claims whilst at 2.45 pm we have the Chicago Purchasing Managers Survey.
September S&P 500
The S&P continued its recent trend of increased volatility with the market almost having a Key Day Reversal. Yesterday marked the fifth consecutive day that the NYSE Advance/Decline ratio closed negative with 1.6 shares down for every one up, which is the longest streak in nearly a year, since the five straight negative days on August 13-19 2013.
I was unlucky with my S&P plan as the market dropped down to my 1963 buy level before stopping me out of this position, literally at the low of the day, at 1957 before having a nice rally over 1970. I am currently flat. This is a seasonally strong time of the year for stocks as we have month-end today and the beginning of a new month tomorrow coupled with the 1945/1950 strong support for the S&P which comes in just below here making it difficult to go short the market.
Today I will be a small buyer on any further dip to 1952/1956 with a 1944 stop. I have to use a wider stop given how important this 1945/1950 support is as a break and close below here will be very bearish. Today I will lower my sell level to 1969/1974 with a 1977 stop.
Euro/USD
The Euro plan worked well especially having exited my long position early yesterday morning. It traded down to my 1.3370 buy level before having a nice rally which enabled me to cover this position at 1.3400 and I am now flat. Today the Euro is again extremely oversold and is trading at the bottom of both its Bollinger Band and Williams Index although the latter has given a small buy signal. Today I will be a small buyer from 1.3365/1.3385 with a 1.3345 stop. Given how oversold the Euro is trading I do not want to be short at this time.
US Dollar Index
The Dollar is also extremely overbought and is currently testing the key 81.50 resistance level. Given how overbought the Dollar is trading I am going to leave my buy level the same at 80.90/81.10 with the same 80.65 stop.
September DAX
The Dax traded in another wild range yesterday as yet again it is trading the heaviest of the major stock indices. After the US released its stronger than expected GDP it rallied to a high of 9710 but unfortunately I was not able to get short and the the market fell 130 points. I then entered a long position at 9590 before we had a nice rally which enabled me to cover this position at 9630 and I am now flat. Today I will again be a small buyer on any dip to 9470/9505 with a 9445 stop. I will also lower my sell level to 9650/9680 with a 9715 stop which is just above yesterday’s high.
September FTSE
In contrast to the Dax, the FTSE continues to trade the better of the two markets with the DAX/FTSE spread now trading near 2800 from a high of over 3200 a few weeks ago. Yesterday after I posted, the FTSE traded down to my 6730 buy level before having a small rally which enabled me to cover this position at 6750 and I am now flat. Today I will lower my buy level slightly to 6700/6725 with a 6695 stop. A break and close below 6710 will again be bearish.
Dow Rolling Contract
The Dow plan also worked well yesterday as the market had a nice rally after the US GDP was released which enabled me to cover my long 16920 position at 16970 and I am now flat. Currently the Dow is approaching key support at 16800 and today I will be a small buyer from 16770/16800 with a 16740 stop. Given that today is month-end I do not want to be short the Dow at this time.
September BUND
The Bund just missed my 148.75 sell level with a 148.71 high before falling 100 points which is the largest 1 day fall in quite a while. Today I will be a small buyer from 147.50/147.80 with a 147.30 stop. I will also lower my sell level to 148.25/148.50 with a 148.80 stop which is just above contract highs made last Tuesday.
Gold Rolling Contract
No change as I am still long Gold at 1295 with the same 1283 stop which is just below last week’s low.
Silver Rolling Contract
Having covered my long 20.40 position at 20.75 on Tuesday I am still flat as Silver has not yet reached my 2010/20.35 buy level. If I am taken long I will leave my stop the same at 19.85.
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