Stock markets rebounded yesterday after the falls of the previous two days. The Dow closed up 1.2% while European Indices averaged an 0.5% gain. Oil has also managed a better day with WTI closing 1.4% higher after the rout of the previous six weeks. The FOMC Minutes from the December Meeting did little to change investor views for the timing of the first rate rise in 2015. The Minutes confirmed that ‘patience’ means there will no rate rise for the ‘next couple of Meetings’ and the Committee still sees inflation expectations as well-anchored, which would be further entrenched by the fall in Oil prices since the Meeting. Indeed some Members expressed concern that inflation could remain too low and run persistently below their 2% objective.
Of key concern to the FOMC is the faltering global economy, particularly if falling Oil prices and weak growth abroad have a ‘substantial negative effect on financial markets’, or if ‘foreign policy responses were insufficient’. The US Dollar has strengthened during the last 24 hours while equity markets are opening firmer this morning enhanced by the nearly 2% rise in the Nikkei.
Earlier yesterday morning European equities got a boost after two German lawmakers in Merkel’s coalition left the door open to debt-relief talks with Greece’s next Government. Support also came from US economic data where ADP Employment figures showed a gain of 241K in December versus 225K expected which would imply some small upside risk to the market’s forecast of 240K in tomorrow’s Non Farm Payrolls Report.
This morning on the economic front we already had the release of German Factory Orders which came in a lot weaker than expected at -2.4% versus -0.8% expected. At 10.00 am we have Euro-Zone Retail Sales, PPI and the Business Climate Indicator. This is followed at 12.00 pm by the Bank of England rate announcement. Finally at 1.30 pm we have the latest US Weekly Jobless Claims.
March S&P 500
The S&P had another wild trading session yesterday with the market closing 1% higher after the previous 4-day, 100 handle sell-off since the highs on December 29 at 2089. The S&P Futures are up big this morning with the market believing the Fed will not hike rates for a few months at least. Yesterday, after I posted, the S&P was trading at my 2014 sell level and after a nice sell-off shortly after the US markets opened, I was able to cover this position at 2007 and I am now flat. I have to respect the fact that the S&P managed to close over the important 2016 resistance level and this price should now act as good support going forward. The S&P Cash market still has an ‘Open Gap’ from last Friday at 2059 whilst the futures equivalent is a lot lower, at 2046. I would expect that the 2046 price will at least be filled before the market attempts another leg down. Today I will be a small buyer on any dip to 2020/2025 with a 2014 stop. My only interest in selling the S&P is on a rally to 2043/2048 with a 2052 stop.
Euro/USD
The Euro made an intra-day low at 1.1802 yesterday and concurrent with this plunge the Daily Sentiment Index is now just 3% bullish and an incredible 5.5% on a 10-day basis, a level that I have never seen before. However I have to respect the fact that the Euro broke and closed below 1.1850 and if this 1.1850 holds through close of business tomorrow then this Euro is going to trade a lot lower. Against that, with pessimism so low and optimism virtually non-existent, in my opinion this is not the time to be bearish the Euro. After I posted yesterday morning the Euro was trading at my 1.1860 buy level before very quickly stopping me out of this trade for a small loss at 1.1825 and I am now flat. Today I will again be a small buyer on any further dip to 1.1750/1.1790 with a wider 1.1695 stop.
US Dollar Index
Late last night I was unfortunately stopped out of my 91.70 short position at 92.30 and I am now flat. The Daily Sentiment Index hit a whopping all time of 98% bulls. According to this Survey only 2% of traders think the Dollar will fall thus increasing the odds of at least a temporary sell-off in the Dollar. Today I will go short again from 92.60/92.90 with a 93.20 stop.
March DAX
Yesterday afternoon the Dax just missed my 9610 sell level by 8 points before falling 100 points and I am still flat as the Dax has gapped higher at the open this morning. However the weaker than expect Factory Orders have since seen it give up some of these gains. However if the Dax manages to close over 9600 this evening then I will have to start moving my buy level higher as the bulls will then be back in control. Today my only interest in buying the Dax is on a dip to 9520/9550 with a 9485 stop. I do not want to be short the market at this time.
March FTSE
I was lucky yesterday with my FTSE plan as by the time I posted the FTSE was trading at the top of my sell range at 6380. It then followed the other major Indices lower after the US markets opened which enabled me to cover this position at 6350 and I am now flat. The market is opening a lot higher this morning and today I will be a small seller on any further rally to 6445/6480 with a 6505 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow plan worked well yesterday as by the time I posted it was trading at my 16520 sell level and following a nice sell-off I was able to cover this position at 17440 and I am now flat. The Dow is trading much higher this morning as optimism returns to the market. Today I will again be a small seller on any further rally to 17750/17800 with a 17850 stop. I have to use wider stops given the volatility.
March BUND
Thankfully I moved my stop higher on my 157.00 short position yesterday as the Bund traded up to a high of 157.26 before having its first decent sell-off in a few weeks. Optimism towards the Bond markets are at extreme levels as shown by Ireland which was able to issue a 7-Year bond yesterday for a coupon of just 86 basis points. Who would want to buy this Irish Bond at these levels given the potential risk involved? I am going to stay short the Bund and today I will lower my stop to 157.30 which is just above yesterday’s new contract high.
Gold Rolling Contract
Overnight Gold has traded down to my 1207 buy level. I am still long and I will raise my stop on this trade to a tight 1193.
Silver Rolling Contract
After I posted yesterday morning Silver again traded lower to my 16.30 buy level. I am still long and I will raise my stop on this position to 15.75.
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