After I posted yesterday morning, China announced that it was re-joining other Central Banks by easing Monetary Policy. The People’s Bank of China cut its Reserve Requirement Ratio by 50 bps from 20.0% to 19.5%, coming after having cut rates last November and the first across the board cut since July 12. The ratio was cut further for lenders to the rural sector and small business. This move by the PBoC led to a huge rally, initially, in the stock markets around the globe. However once Oil started to get slammed to the downside the US stock markets was hit hard into the close with the S&P falling over 25 handles in the last thirty minutes of trading before stabilising overnight.
The WTI spot futures contract was crunched by $5 to close at $48.60 after the US EIA reported a hefty 6.33mb inventory build last week, to the highest levels since records began in 1982. Capex is down but production is still rising, with the EIA forecasting 9.31mb of US production this year, the most since 1972. The Canadian Dollar was a big casualty, losing another 1% against the US$.
The Euro was also hit after some strong words from German Chancellor Angela Merkel, injecting some Teutonic financial reality into the debate from an existing Greek Bond holder’s standpoint after the Greek debt swap proposal.
Non-voting Cleveland Fed President Loretta has been on the wires offering her upbeat US assessment, speaking of significant improvement, and being comfortable with lift-off in the first half of 2015, while saying that Monetary Policy will not change until the Fed objectives are fully met.
This morning on the economic front we have the Bank of England rate announcement and Asset Purchase Target at 12.00 pm. The only data of note due today is the US Weekly Jobless Claims and Trade Data at 1.30 pm as all eyes will turn towards the Non-Farm Payroll data tomorrow.
March S&P 500
I started trading in BNP Bank in 1986 and in my 29 years of trading I cannot remember a more volatile trading environment across all asset classes. The S&P is trading within a 40/120 handle range nearly every day while Oil is moving up and down at least 4/8% on a daily basis. There is no doubt that the strong US Dollar is causing a lot of this volatility.
The S&P plan worked out very well yesterday as by the time I posted the market was trading at my 2035 buy level before having a nice run higher in the afternoon to a 2049 high which enabled me to cover this position at 2042 and I am now flat. Incredibly after making new highs for the day at 2049 the market got slammed into the close which continued overnight to a 2020 low before the market stabilised and is currently trading at 2034. The fact that we have the Non-Farm Payrolls data tomorrow, I cannot see the market falling too much ahead of this key economic release. For this reason I will be a small buyer on any dip lower to 2021/2026 with a 2017 stop. If I am taken long and subsequently stopped out, I will use my ‘5 Handle Rule’ to re-buy with a stop below whatever new low is put in. I am reluctant to go short today and my only interest in selling the market is still on a rally to 2055/2062 with a 2066 stop.
EUR/USD
The Euro plan did not work out yesterday as after the market traded lower to my 1.1400 buy level, I was unfortunately stopped out of this trade overnight at 1.1360 and I am now flat. I have no doubt that given the extreme pessimistic sentiment towards the Euro that the Euro is due a decent rally that will last more than a few days. I am very confident that this rally will occur as long as there is no close below 1.1250. For these reasons I will again look to buy the Euro on any dip to 1.1310/1.1350 with a wider 1.1240 stop. My only interest in selling the Euro is on a rally back to 1.1540/1.1580 with a 1.1610 stop.
US Dollar Index
Shortly after I posted yesterday morning the Dollar Index traded higher to my 94.60 sell level. I am still short and I will leave my stop the same at 95.10.
March DAX
The idea of buying the DAX on any dip as long as we do not close below 10660 continues to pay dividends. Late yesterday evening when the S&P started to fall aggressively the DAX traded lower to my 10810 buy level and after a nice move higher this morning I have covered this position at 10900 and I am now flat. Today I will still be a small seller on any further rally to 10980/11010 with a 11050 stop. I will also be a small buyer on any dip lower to 10790/10830 with a tight 10750 stop.
March FTSE
The FTSE is back trading on the heavy side with the market well lower from when I marked prices 24 hours ago. After I posted yesterday the FTSE just missed my 6845 sell level and despite the other major Indices recovering their losses from last night the FTSE is finding it difficult to rally. Today I will lower my sell level to 6795/6825 with a 6845 stop which is just above yesterday’s high. I still do not want to be long the market at this time.
Dow Rolling Contract
The Dow plan also worked well yesterday as very late in the day the Dow traded higher to my 10720 sell level before having a nice sell-off into the close which enabled me to cover this position at 10640 near the close and I am now flat. The Dow subsequently made a low at 10565 overnight before following the other major Indices higher this morning. Today I will again look to go short on any further rally to 10720/10760 with a 10810 stop. I still do not want to be long the Dow at this time considering that we already have had seven Hindenburg Omen signals in 2015.
March BUND
This morning the Bund has traded higher to my 159.10 sell level. I am still short but as I do not want to risk too many points on this trade I will lower my stop to 159.35. If I am stopped out of this trade I will be a more aggressive seller in front of 159.70 with a 160.10 stop.
Gold Rolling Contract
No change as I am still long at 1261 with the same 1249 stop.
Silver Rolling Contract
Silver had a nice rally after I posted yesterday which enabled me to cover my long 17.30 position at 17.65 and I am now flat. Today I will again look to buy Silver on any dip lower to 16.70/17.00 with a 16.40 stop.
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