Equity markets got hit hard yesterday after the ADP Employment change came in lower than expected as the market awaits the June Payroll data tomorrow. The Dow lost over 200 points (-1.5%) and is now down three of the past four days for the first time this year as the character of the market has changed for the worse. The markets were not helped by the fact we have had four Hindenburg Omen observations in the past five days. This is a potential stock market crash warning signal that has appeared before 9 of the past 10 stock market crashes. The market was also not helped by weaker than expected Factory Orders and comments from the Fed’s Fisher who said that we should be tapering QE already.
Overnight the Nikkei lost another 1% and now sits at 12,900 just above the very important support area at 12,800. The Fed released is Beige Book last night and this showed that the US Economy expanded at a modest to moderate pace in 11 of 12 Central Bank Districts with broad based gains ranging from business services to construction and manufacturing. The markets briefly rallied on this data before selling off into the close. On the currency markets, the US Dollar continues to strengthen against the Japanese Yen and Aussi Dollar but lost ground against the Euro and Sterling and this theme is likely to continue.
Today is a very busy one for economic releases and this will lead to a heightened bout of volatility over the remainder of the week. This morning we have German Factory Orders ahead of the Bank of England Interest Rate announcement and Asset Purchase target followed by the ECB rate announcement and the press conference from President Dragi at 1.30 pm. In the US we have the Weekly Jobless Claims which will be closely watched ahead of tomorrow’s Non-Farm Payrolls. The Fed’s Plosser is due to speak on the economy In Boston this afternoon.
June S&P 500
The S&P fell hard yesterday for the third day out of four and is now down over 45 handles from the high made last Friday afternoon. The McCllellan Oscillator is now approaching levels last seen before the bottom of the market last November which led to the massive rally we had over the last six months. The market is now at the bottom of the Bollinger Band and Williams Index and we are also very near the Gap left from the May Payrolls which runs from 1593/1604. Against all this we have major economic data due out between today and tomorrow which has the potential to exaggerate market moves in both directions. The S&P just missed my 1631 sell level yesterday, and in the process has left a small Gap from 1629/1633 from Tuesday, before falling hard to my 1610 buy level. I am still long and I will raise my stop to 1604 as I look for the market to bounce this morning ahead of the BOE and ECB rate announcements. I will look to cover my position ahead of the Weekly Jobless Numbers. If the market rallies from here I will be a small seller on any rally to 1625/1630 with a 1634 stop and I will also be an aggressive buyer on any dip to 1595/1602 with a 1590 stop.
Euro/USD
The Euro worked well as we traded up to my 1.3110 sell level with a 1.3122 high. I covered this position at 1.3070 and I am now flat. Today is ECB day and the press conference from Dragi. I have noted that for the last few ECB meetings the Euro has always rallied after Dragi speaks. This is the main reason that I have not been short the Euro for the last few months and it will take an eventual break of 1.2750 for me to turn bearish. The Euro is overbought here but I still do not want to go short unless we trade up to 1.3230/1.3260 with a 1.3280 stop. On the other side, I will raise my buy level to 1.3060/1.3080 with a 1.3050 stop which is just below yesterday afternoons low.
June FTSE
The FTSE just missed my 6520 sell level before falling hard in the afternoon. It dropped down to my 6425 buy level but unfortunately I was stopped out of this position at 6395. The FTSE is oversold and at the bottom of the Bollinger Band and I have bought the market this morning at 6402. I will leave my stop at 6374 which is just below the overnight low. I do not want to be short the FTSE today.
June DAX
The Dax worked well as the market dropped hard just before lunch and I was able to cover my 8270 short position at 8210 and I am now flat. Today I will look to reset my short position on any rally back to 8260/8280 with the same 8310 stop.
June BUND
The Bund worked well as the market just traded into my 143.35 buy level before the market rallied. I covered this position at 143.75 and I am now flat. I still like the Bund and I will use any sell-off to 143.40/143.60 to reset my long position with a 143.30 stop which is just below yesterdays low.
June Nasdaq 100
The Nasdaq continues to fall but unfortunately just missed my 2985 sell level first and I am still flat. Today as we have an open Gap from 2911 since the beginning of May I will be a buyer on any dip to 2905/2920 with a 2895 stop. I do not want to be short the Nasdaq today.
Silver Rolling Contract
No change as I am still a buyer on any dip to 21.90/22.20 with a 21.75 stop.
June Nikkei
This contract is not one that I normally trade, given the volatility, but I feel that there is an opportunity here. The market just sits above very important support at 12,750/12,800 and as a result I have bought the market this morning in very small at 12,900 with a 12,650 stop.
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