Yesterday was a quiet and mixed trading session for markets. Most European equity Indices ended the day with small loses while US equities have traded in and out of positive territory. One factor weighing on markets was the sharp drop in China’s Shanghai composite. The index fell 2.47% amid concerns over the country’s property market following comments from China Vanke Co.’s president noting that Home Sales will drop “significantly” in the coming year.
To mark my 1225th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 48 points yesterday and is now ahead by 818 points for December having made 1971 points in November and 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
US and European energy stocks benefited from yesterday’s rise in oil prices during the Asia session, however oil prices eased later in the US session with WTI drifting to $52.60 after trading to an intraday high of $54.46.
In a similar pattern, 10y US Treasury Yields struggled to stay above the all-important 2.50% mark. After trading to a high of 2.526%, 10y UST are now trading at 2.47%. That said, the fact that 10 UST briefly topped 2.5% for the first time since October 2014 is important, 10y UST tend to top out in big round figures, the question now is whether this time it will be different.
The US Dollar was weaker across the board with the pullback in US Treasury yields and position adjustment ahead of the FOMC meeting probably the likely drivers. A December Fed rate hike is more than fully priced and the risk is that the Fed keep its Funds Rate outlook unchanged (median dot point current suggests 2 hikes in 2017) until its sees inflationary evidence from Trump’s policies.
Sterling was the top performer yesterday, up 0.77% against the US Dollar and currently trading at 1.268. Speculation around a deal for UK and EU citizens being allowed to remain in the EU and UK respectively was noted as one catalyst while the Chancellor of the Exchequer Philip Hammond said that there is a growing consensus on transitional Brexit period being extended beyond two years.
The AUD has again flirted with a move above 75c, breaking above the level on three occasions overnight. However air remains thin above the mark and now the currency is back trading with a 74 handle. That said commodity prices continue to support the currency and relative to yesterday’s levels the AUD is 0.54% stronger against the USD. Iron ore prices have climbed 2.4% with news from Port Hedland showing iron ore exports are up by 10%.
This morning on the economic front we already had the release of German CPI which rose 0.1% as expected. At 9.30 am we have UK CPI, PPI and the House Price Index. This is followed at 10.00 am by Euro-Zone Employment along with both German and Euro-Zone ZEW Survey Current Situation/Expectations. At 11.00 am we have the US NFIB Small Business Optimism. Finally at 1.30 pm we have US Import Price Index.
December S&P 500
The S&P traded in a very narrow range as the market consolidates ahead of the expected rate hike at tomorrow’s FOMC Meeting. The S&P is still overbought on both a Daily and Weekly basis and is due a decent correction after its 240 Handle rally in under five weeks. According to the Ned Davis Research the ”fair value” for the S&P is at 1635 and obviously we are well above that level currently. NDR considers one standard deviation over that level as ”overvalued” which would be at 2135. At 2258 as I write this commentary, we are getting deeper into overvalued territory. Of course the market can get more overvalued as we saw with the Tech Bubble and of course we are now in the seasonally strong time of the year but I just want to highlight how overextended this market is getting. Please re-read my comments form yesterday on the historic high in the RSI for the Dow. Remember if we do get a recession in the US which leads finally to a bear market for US Indices, it will not just push the S&P back down to ”fair value” as it will fall into undervalued territory, which NDR estimates will be at 1134, That is a 50% fall from current prices. I am not saying that this is going to happen but I want to give everyone an idea of how overvalued and overextended the stock market is. One point of note that since 1928 the average number of days for a 20% correction was 635. The current case of 1956 days without a 20% correction is more than three times the average and this is not sustainable. We can certainly thank the main Central Banks for popping up the stock market so far. Today I will leave my sell level unchanged at 2268/2274 with a 2279 stop. As I am still flat the S&P, I will now raise my buy level slightly to 2236/2242 with a 2231 stop.
EUR/USD
My Euro plan worked well with the Euro trading higher to my 1.0650 sell level before trading to a 1.0620 low print. As I am not comfortable in being short the Euro despite last week’s Downside Key Day Reversal I emailed my Platinum Members to exit this short position at 1.0637 and I am now flat. The Euro continues to hold above the March 23, 2015 low at 1.0462 as we still have the negative divergence vis a v the Dollar Index which is till trading above it 100.65 equivalent low from that day. Today I will now move my buy level higher to 1.0525/1.0560 with a 1.0495 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any dip lower to 1.0440/1.0475 with a tight 1.0410 stop. Despite last week’s Downside Key Day Reversal I do not want to be short the Euro at this time especially as a US rate hike is now fully priced into the market.
December Dollar index
No change as my only interest in selling the Dollar is still on a rally higher to 101.80/102.20 with a 102.50 stop.
December DAX
Unfortunately the DAX just missed my 11110 buy level before rallying strongly and I am still flat. Even though the DAX is severely overbought there is no point in trying to sell the market as it continues to be a buy on dips. Today I will move my buy level higher to 11110/11160 with a 10065 stop.
December FTSE
The FTSE continues to severely underperform the other major Indices as the market just cannot get any meaningful rally to hold. The strength of Sterling is not helping with Sterling ending the month of November as the strongest of the G10 currencies. Yesterday’s move lower saw the market hit my average buy level at 6905. So far the FTSE is holding its key 6870 support level and I will now leave my stop unchanged at 6860. If I am stopped out of this position or I manage to exit the trade with a profit, either way I will be an aggressive buyer on any further dip lower to 6795/6825 with a 6760 stop. Despite the weak price action I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow is severely overbought as mentioned at length in yesterday’s commentary but short positions are still risky. Interestingly despite the Dow closing at new all-time highs yesterday the McClellan Oscillator fell to close with just a +83 print. Remember we still have a confirmed Hindenburg Omen on the clock and this signal is valid until next March. Today I will raise my sell level in the Dow to 19910/19980 with a 20050 stop. If I am taken short and stopped out of this position I will be a more aggressive seller on any further rally to 20200/20350 with the same 20450 stop. Given the volatility I have to use wider parameters with smaller stake size. Naturally I do not want to be long the Dow at this time.
March BUND
My long 160.95 Bund position worked well as shortly after I posted the Bund traded higher to my 161.30 T/P level and I am now flat. Today I will again look to buy the Bund on any dip lower to 160.60/160.90 with a 160.25 stop.
Gold Rolling Contract
Gold sold off to a 1151 low print but managed a strong recovery. The big question is did Gold bottom at yesterday’s low or is there one more lower print needed first. Gold is severely oversold on the Weekly chart and today I will look to buy the market from 1146/1155 with a 1139 stop.
Silver Rolling Contract
No change as I am still long Silver at 17.14 with the same 16.60 stop. Silver traded to a 16.66 low print before also rallying strongly. Remember we still have positive divergence for Silver over Gold as we have held the November low at 16.15 while Gold has broken its equivalent November low on six occasions.
Please note that I will hosting my monthly take on the markets in IG Index Dublin this evening at 6.00 pm and if you would like to attend please click on the following link to register
https://www.ig.com/uk/euro-in-2017
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