Equity markets in both Europe and the United States closed narrowly mixed (S&P flat, Eurostoxx -0.3%) yesterday whilst US Treasury Yields extended Friday’s sharp move higher, with the 10 Year Bond up a further 2 basis points to 1.92%. The article in the Wall Street Journal from noted Fed watcher, Jon Hilsenrath, indicating that the Fed has a plan to wind down QE continues to reverberate, despite the absence in the piece of any hints as to when the Fed might actually begin the process or precisely what form it might take. As well as New York getting the first opportunity to react to the story the upside surprise in the US Retail Sales Report also contributed to higher Bond Yields. Headline Retail Sales rose 0.1%, against -0.3% expected, indicating that it looks more and more that the US economy may have shrugged off the impact of the January tax rises and March spending sequester.
The US Dollar is little changed this morning while John Taylor of FX Concepts is the latest high profile US Hedge Fund Manager to say that the Australian Dollar is in a bubble. Sterling was the weakest performing currency yesterday enhanced by warnings from the UK Confederation of British Industry that new capital rules for banks could damage the economy’s recovery.
On the Economic front today we have Euro-Zone Industrial Production and the German ZEW Survey, this morning, whilst the UK releases its RICS House Price Balance. The only data of note from the US is the NFIB Small Business Optimism Index. The Fed’s Plosser is due to speak on Monetary Policy in Sweden.
June S&P 500
Yesterday was another very quiet day for S&P trading with volumes again on the low side. The Daily Sentiment Index continues to print 92% Bulls and it is for this reason that I find it very hard to buy the market. The Keynes theory that markets can remain illogical longer than I can remain solvent is certainly an apt way to describe this market but as long as the Fed are doing $85 billion of Asset Back Purchases each month it is very hard to fight the Bulls. The market rallied to my 1628 sell level and I was later stopped out of this position at 1633 and I am now flat. I know today is Tuesday and the S&P has been up for the last 17 Tuesday’s in a row but I will give this market one more chance to fall. Today I will be a small seller on any further rally to 1630/1634 with a 1637 stop. Given how important the 1620 level seems to be considering that we have bounced off this level three times since last Thursday I will be a small buyer from 1620/1624 with a 1618 stop.
Euro/USD
The Euro continues to hold the very important 1.2950 support zone. I am impressed how well the Euro has held this level when you consider how weak the Aussi Dollar and Sterling are trading against the US Dollar. Today I will be a small buyer on any dip to 1.2950/1.2970 with a 1.2930 stop which is just below Fridays low. Remember a break and close below 1.2950 will be bearish. If the Euro rallies from here I will look to sell the market on any rally to 1.3060/1.3080 with a tight 1.3105 stop.
June DAX
The Dax worked well yesterday as shortly after I posted the market dropped down to my buy zone with a 8218 low. I Bought the Dax at 8230 and I took profit at 8275 and I am now flat. Today I will look to buy the Dax on any dip to 8235/8250 with a 8215 stop which is just below yesterday’s low. I am only interested in selling the Dax if we rally to 8360/8390 with a 8410 stop.
June FTSE
The FTSE rallied up to my 6610 sell level and I am now short. I will leave my stop at 6635 and I will look to take profit on any dip back to 6560/6580.
June BUND
The Bund just missed my 145.20 sell level and I am still flat. I will leave my sell level the same at 145.20/145.50 with a 145.60 stop. I will still look to buy any dip to 144.30/144.50 with a 144.20 stop which is just below last Fridays low.
Gold Rolling Contract.
No change from yesterday as I still want to sell the market in front of 1460 with a 1472 stop. The market just missed my 1425 buy level yesterday morning and today I am a small buyer on any dip to 1410/1420 with a lower 1395 stop.
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