The biggest mover on the currency front yesterday was the Australian Dollar which fell 2% to close below 86.00 versus the US Dollar. This fall exceeded the latest run-up in the USD/JPY which added another 1% since yesterday after comments from Bank of Japan Governor Kuroda who said there were no limits to the BoJ’s policy tools. These comments, together with a public call for additional fiscal stimulus by the LDP’s junior opposition partner, both added fresh fuel to the Yen fire.
Global equities continue to power on helped by the easy victory by the Republicans in the US Mid-Term Elections and who now control the Senate after easily wrestling control from the Democrats. The markets were also helped by comments from stock market historians who highlighted that traditionally the last quarter of a year in which there are Mid-Term Elections during a second term Presidency and the first quarter thereafter have generally been very good periods for US stocks. The S&P closed at a new record with a gain of 12%.
Another strong feature yesterday was the hammering that Gold took with the market down another $22, or 2%, to close near $1140. This is a huge move considering last Thursday we were trading over $1200 an ounce.
This morning on the economic front we have UK Industrial Production at 9.30 am. This is followed at 12.00 noon by the Bank of England Rate decision and Asset Purchase Target. At 12.45 pm it is the turn of the ECB to announce their latest Policy decision with all eyes turning to ECB President Dragi at 1.30 pm when he holds his latest press conference. This promises to be a lively affair given the latest inflation data out of Europe. At the same time the US will release its latest Weekly Jobless Claims and Nonfarm Productivity.
December S&P 500
Shortly after I posted yesterday morning it was confirmed that the Republican Party had seized control control of the Senate thus sending the S&P higher and in the process stopped me out of the rest of my 2017 short position from Monday at breakeven. The market subsequently made a new high at 2021 and using my 5 handle rule I went short again at 2016. After the US markets opened the S&P sold off thus allowing me to cover this position at 2010 and I am now flat. It is interesting that with the S&P and Dow both making new closing highs the McClellan Oscillator only rose 2 points to close at 166. Despite the number of historians coming out in favour of the stock market at this time I am still going to use any spikes to get short with a tight stop as this market is due a significant correction before the market can go higher. Today I will again be a small seller from 2021/2026 with a 2031 stop. The S&P needs to break and close below 1995 for the bears to start to take control again. Given how overbought this market is I still do not want to be long at this time.
Euro/USD
By the time I posted yesterday morning the Euro was trading through my 1.2490 buy level at 1.2470. I went long at this price level and today I will lower my stop to 1.2420 to give this trade some room especially with the ECB and Dragi press conference later this morning. As I have mentioned over the last two weeks the 1.2450 is key support and if I am stopped out of this trade I will be a more aggressive buyer in front of 1.2380 with a 1.2340 stop. Given how oversold the Euro is trading and the fact that the ECB are in a battle with the Bundesbank who do not want the Euro lower I do not want to be short the Euro at this time.
US Dollar Index
By the time I posted yesterday morning the Dollar Index was trading at its highs. I went short at 87.65 and I will leave my stop the same at 88.05. If the Dollar trades back to 87.10 I will look to cover my position here and reset my short position on any subsequent move back to 87.70 with 88.10 stop.
December DAX
The Dax was also spiking higher and trading near the highs of the day by the time I posted yesterday morning. I went short at 9320 and after a nice sell-off after the US markets opened I was able to cover this position at 9270 and I am now flat. The Dax is struggling to follow the US and Japanese markets higher and today will be a crucial trading session as to the next meaningful move for the market with the ECB Meeting and Dragi press conference that follows. I am going to stay flat until i see what Dragi has to say and if the Dax rallies further I will be a small seller from 9370/9400 with a 9430 stop. I still do not want to be long the Dax at this time.
December FTSE
Shortly after I posted the FTSE traded up to my 6520 sell level. I am still short as the market traded in a very narrow range yesterday. I will leave my stop the same at 6545.
Dow Rolling Contract
Given how overbought the Dow is currently trading my strategy is to sell spikes with a tight stop. Yesterday after I posted the Dow was trading at the top of my sell range at 17460. I went short here and after a nice sell-off following the opening of the US Markets I was able to cover this position at 17410 and I am now flat. Today I will again be a seller on any further rally to 17500/17540 with a 17570 stop. I still do not want to be long the Dow at this time.
December BUND
No change as I am still short at 151.35 from Tuesday with the same 151.70 stop. If I am stopped out of this position I will look to go short again on any subsequent rally to 151.95/152.25 with a 152.55 stop.
Gold Rolling Contract
By the time I got to post yesterday morning Gold was already trading through my buy level and stop. The Daily Sentiment Index Reading has been below 10% bulls for four straight days and the 5 day average is now 7.6% which is the lowest level since early October which resulted in a $72 rally. I am not saying the same is going to happen but the odds are that we will have at least a $40/$100 rally over the coming weeks. For this reason I have gone long Gold again at 1140 with a wider 1125 stop. If I am stopped out of this position I will look to reset on any subsequent $10 rally with a stop below whatever new low is put in.
Silver Rolling Contract
Unfortunately I was stopped out of my long 15.90 position yesterday morning at 15.25 and I am now flat.The Daily Sentiment Reading for Silver is even more extreme than Gold with the next key support at the 14.65 level. Today I will be a buyer on any dip to 14.90/15.30 with a 14.45 stop or if we break 15.80 I will also go long with a 15.10 stop which is just below yesterday’s low.
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