Well there’s one conspiracy theory that has come to naught, that Fed Governor Brainard – a monetary policy dove to now – had become more policy hawkish and indicate that next week’s September 20/21 FOMC Meeting would be ”live”. Speaking on the economic outlook in Chicago, Brainard councelled continued prudence in the withdrawal of monetary policy. ”The case to tighten policy pre-emptively is less compelling”. In an environment where declining unemployment has been slow to spur faster inflation, she remarked.
Due to the number of members taking up my 2 year Euro 2500 for my Platinum Service in recent months, this will be the last month I am offering this special price which will now rise to Euro 2750 On October 1 2016. If anyone is still interested in this original deal which has been in situ since last January 1, can you please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it lost 70 points yesterday and is now down 142 points for September having made 1722 points in August and 1682 points in July. The previous three months saw gains of 2550, 1532 and 2175 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 2000 points.
Asymmetry in risk management in today’s new normal argues for caution, in Brainard’s view, saying that it is much easier for the Fed to react to faster-than-expected demand than to a negative surprise that upsets the economy. ”I believe this approach has served us well in recent months”. She did note that the Fed has made progress on its employment and inflation mandates, but that inflation has not advanced as much as the Fed had hoped.
It was a market moving address but the impact was the reverse of what the market had feared at the end of last week. It was something of a reversal for the US Dollar, with the Bloomberg Dollar Index closing 0.25% lower, as most of the majors made up some ground. Bonds rallied after opening heavier in the lead up to the address, with US equities also rallying strongly on her address with the Dow and S&P closing up 1.32% and 1.47% respectively having opened much lower. US 2y Bonds eased a basis point net for yesterday’s trading session, with 10 Year Treasuries also closing 2bps lower. The VIX which had spiked to 20 after the US markets opened closed 2.34 points lower at 15.16. Meanwhile Gold clawed back most of its earlier session losses.
Also speaking yesterday were Fed Presidents Lockhart and Kashkari who are not voters on the FOMC this year, Lockhart arguing for a ”serious discussion” on raising rates but refraining from calling for an actual move now. Kashkari said there was ”no urgency to act”.
The Fed is now in media lock down mode ahead of next week’s FOMC Meeting, so that is it on the potential volatility front from that source at least ahead of this key meeting. The market is pricing in a 22% chance of a hike next week and 70% by the December meeting.
This morning on the economic front we already had the release of German CPI which printed 0.0% 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 while both Germany and the Euro-Zone will release its latest ZEW Survey Current Situation/Expectations. Also at 10.00 am ECB President is due to receive the ”Alcide De Gasperi” award in Trento. Next we have the US NFIB Small Business Optimism at 11.00 am. Finally at 7.00 pm we have the US Monthly Budget Statement.
December S&P 500
S&P volatility after a two month break is back with a vengeance but as we saw yesterday is almost untradeable. I am sorry that I have had no luck with my S&P calls all month as given how oversold the S&P was trading yesterday morning I tried to be too clever with my 2105 buy level which just missed with a 2108 low print before the gap lower was filled and then the market incredibly rallied to a 2163.5 high print on the dovish comments from Brainard, before trading lower to 2148 as I write this commentary. In my view there is no doubt that some serious technical damage was done on Friday but trying to be short this market in a momentum driven environment is extremely difficult especially when we have the September Quarterly Expiration on Friday followed by the FOMC Meeting next Wednesday. Yesterday’s move higher saw the S&P close some of its down gap from Thursday’s Chicago close to Friday’s afternoon high. However we still have a 2163.50/2176 ”Open Gap” to be filled and there is a good chance we will close this gap before the FOMC Meeting next week. I must say I was very surprised how easily the 2135/2145 resistance level was regained as this area should have acted as strong resistance but I was totally wrong on that assumption. Today the S&P has support at the 2148 level and then strong support from 2135/2140. For the record yesterday I sold the S&P in very small size at 2136 and then added to this position on the spike higher on Brainard’s comments at 2152 before getting stopped out of this position at 2156 and I am now flat. This morning’s move lower leaves another gap lower from last night’s 2157 Chicago close and I will now look to buy the S&P in small size from 2135/2144 with a 2126 wider stop. Given the volatility we have to trade in smaller size with a wider stop. My only interest in selling the S&P is on a rally higher to 2168/2175 with a 2181 stop.
EUR/USD
The Euro traded lower to my 1.1215 buy level before having a nice rally to 1.1269 on Brainard but as I wanted to be flat ahead of her comments I covered this long position too early at 1.1225 and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.1150/1.1190 with a 1.1120 stop as I cannot see the Fed hiking rates when it meets next week.
September Dollar Index
No change as I am still a seller on any rally higher to 95.70/96.10 with the same 96.40 stop.
September DAX
Just like all my equity markets yesterday the DAX just missed my 10300 buy level after I posted with a 10320 low print before having a 200 point rally and I am still flat. Today I will raise my buy level to 10320/10375 with a 10255 stop. I still do not want to be short the DAX at this time.
September FTSE
My FTSE plan worked well as just after I posted the FTSE hit my 6655 buy level before having a quick 35 point initial rally which enabled me to cover this position at my revised 6680 T/P level and I am now flat. Today I will again look to buy the FTSE on any dip lower to 6640/6675 with a 6595 stop. If I am taken long in the FTSE and I am stopped out of this position, or if I am taken long and manage to cover this long position for a T/P, I will again look to buy the FTSE in good size from 6560/6590 with a 6520 stop. Given the fact that we have the September FTSE expiration on Friday I do not want to be short the market at this time.
Dow Rolling Contract
When I posted my normal update yesterday morning I wrote at the time to be a strong buyer from 17850/17920 which the market hit with a 17905 low print before subsequently the Dow rallied incredibly to a 18358 high print before trading lower this morning to a 18200 print as I write this commentary. Unfortunately and very frustrating for my Platinum Members I lowered my buy level to 17905 which the market missed with a 17915 low before having this massive rally as mentioned above. For anyone who did buy the Dow then you had a nice gain thankfully. The McClellan Oscillator which closed with a negative 148 reading on Friday, improved overnight to close with a -70 print. There is now doubt that after yesterday’s V shaped recovery that the 17900 low will now act as very strong support against any subsequent sell-off. Today given the large down gap in play this morning I will be a small buyer from 18100/18160 with a 18040 tight stop. I still do not want to be short the Dow ahead of Friday and the FOMC next week.
December BUND
I am still flat the Bund and today I will now raise my sell level slightly to 164.20/164.50 with a 164.85 stop. I will also raise my buy level to 162.85/163.20 with a 162.45 stop.
Gold Rolling Contract
Gold traded in a very narrow range yesterday after last Friday’s sell-off. Having stayed out of the market yesterday I will now look to buy Gold on any dip lower to 1310/1318 with a 1303 stop.
Silver Rolling Contract
Silver hit my 18.75 buy level after I posted yesterday before having a nice rally overnight to a 19.30 high print. Unfortunately I covered my long position at a revised 18.90 T/P level and I am now flat. Today I will again look to buy Silver on any dip lower to 18.60/18.90 with a 17.95 wider stop, which is just below the major support level at 18.00/18.30.
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