Yesterday the main market price action has been the continued sharp fall it the NASDAQ of some 2.0%, seemingly driven by a succession of negative analyst reports on valuations, renewed selling of Sterling on Monday after a reprieve when markets opened in Asia on Sunday night, and a jump in the Canadian dollar after Senior Deputy Governor or Carolyn Wilkins gave a fairly strong hint that the Bank of Canada is shifting to a ‘tightening bias’ given recent improvements in the economic data. US bond markets have been treading water in front of the two day FOMC meeting that commences this afternoon, 10s stuck around 2.2%, while the Australian dollar has been spent most of its time meandering within a narrow 0.7420-0.7445 range.
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For anyone following my Platinum Service it made 50 points yesterday and is now ahead by 360 points for June, having made 1071 points in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
In Europe, the first round of voting for the French National Assembly has produced indications for a strong working majority for President Macron’s ‘Republic on the Move’ party. At this stage, this is showing up in a fall in French government bond yields rather than a firmer Euro.
Selling pressure on all things Sterling re-emerged on Monday, with GBP/USD falling to a fresh low of $1.2640 and EUR/GBP to the intra-day highs above 0.8850 nearly 100 points higher than what we witnessed during the European session on Friday when the news of the indecisive election results was first absorbed. PM May’s two senior advisers – whose advice was presumably the reason for calling the election in the first place – were on Friday the first victims of the result.
After markets on Friday entertained thoughts of a softer Brexit, focus Monday turned to the unstable nature of the new government and the precarious position of PM May, an unfriendly backdrop for spending and investment. With open speculation of a second election this year, one opinion poll published on Monday puts Labour ahead of the Conservatives. There has also been no indication as yet from 10 Downing Street that a change of tack on the government’s Brexit position is imminent.
Sterling weakness Monday contrasts with Canadian Dollar strength, after the BoC’s Wilkins said that “As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,” USD/CAD is currently down 1.4% to 1.3280. The Bank of Canada does not meet for another month.
A steady Australian Dollar has come despite the latest drop in iron ore prices on Friday, to $54.41 and the lowest levels since 1st July 2016. The small recovery overnight still leaves then sub-$55. Other commodity prices, including oil, are quite narrowly mixed while both Gold and Silver are trading lower.
This morning on the Economic Front we have UK CPI, PPI and the House Price Index at 9.30 am. This is followed at 10.00 am by German and Euro-Zone ZEW Survey Current Situation/Expectation, while at 12.00 pm we have the US NFIB Small Business Optimism. Finally at 1.30 pm we have the US PPI.
June S&P 500
My S&P plan worked well with the market trading lower to my 2420 buy level shortly after the US Markets opened before rallying back above 2431 this morning. In keeping with my theme of banking points when available, I covered this position at my revised 2423 T/P level and I am now flat. The NASDAQ which sold off another 2% following more analysts’ downgrades rebounded into the close. Speaking of valuations, Amazon is now trading 220% higher since 2015 and is now the fourth largest company in the world in market cap. However its P/E ratio is currently 187 and a net-profit/sales ratio around one-tenth of Microsoft. This is of course madness but until we get a sell extreme that lasts for more than a few days, the S&P is still a buy on dips. As I mentioned yesterday the US stock market almost always rallies ahead of an FOMC Meeting and for this reason I will again look to buy the S&P on any dip lower to 2418/2424 with a 2413 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2395/2401 with a 2390 stop. Despite Friday’s sell-off my only interest in selling the S&P is still on a rally higher to 2462/2470 with a 2476 stop.
The Euro traded in an extremely narrow range yesterday as this rally phase nears completion. As I mentioned in yesterday’s commentary the position towards the Euro is at its highest level in over 10 years. On top of this, the Large Speculators are sitting on a net-long 71,335 contracts which is larger than they displayed at the 1.3993 high on May 2014, when the Euro was trading nearly 20% higher than it currently is trading. They are also more bullish now than they were at the 2015 and 2016 highs at 1.1617-1.1712 so caution is certainly warranted in relation to being long the Euro at this time. Today I will now lower my sell level to 1.1270/1.1310 with a 1.1350 stop. The Euro has strong support at 1.1130 and today I will be a small buyer on any dip lower to 1.1100/1.1140 with a 1.1070 tight stop.
September Dollar Index.
To me it is only a matter of time before the Dollar rallies given the extreme negativity towards the greenback at this time. I am still flat the Dollar and today I will now raise my buy level to 96.40/96.80 with a 96.10 stop.
My DAX plan worked well as shortly after I posted yesterday morning the DAX traded lower to my 12670 buy level before quickly rallying back above 12700 and I used this rally to exit this position at my revised 12690 T/P level and I am now flat. With the DAX now trading at 12730 I will again look to buy the DAX on any dip lower to 12645/12690 with a 12595 stop. Ahead of tomorrow’s FOMC Meeting I still do not want to be short the DAX at this time.
Unfortunately the FTSE just missed my 7465 buy level before rallying strongly on the back of Sterling getting hit hard yesterday and I am still flat. Today I will now raise my buy level slightly to 7460/7490 with a 7430 tight stop. Despite the FTSE being severely overbought I do not want to be short the market at this time.
Dow Rolling Contract
Unfortunately the Dow just missed my 21170 buy level with a 21186 low print before rallying into the close and that rally has continued overnight with the market currently trading at 21258. The Dow has strong resistance from 21400/21460 and I will be a seller in this area with a 21520 stop. I am not going to chase the Dow higher and I will only raise my buy level slightly to 21130/21190 with a 20980 stop.
The BUND continues to trade in bullish mode despite the market being extremely overbought. However we still do not have a sell signal and for this reason I will now leave my sell level unchanged at 165.35/165.65 with a lower 165.95 stop.
Gold Rolling Contract
As I am long Silver I will leave my Gold buy level unchanged at 1249/1256 which is just below the 500 Week Moving Average at 1259.
Silver Rolling Contract
Overnight Silver has traded lower to my second buy level at 16.90 which now has me long at an average rate of 17.06. Silver has sold off more than I expected since we exited the last of our long positions last week at 17.69. Silver has strong support from 16.40/16.70 which may well need to be visted before the market finally breaks higher. I will leave my stop unchanged at 16.60 while I will now lower my T/P level on this trade to 17.10. If I manage to cover this long position at 17.10 I will again look to buy Silver on any dip lower to 16.40/16.75 with a 16.10 stop.