The US Cash Bond markets may have been closed for the Columbus Day Holiday yesterday but the Futures market was trading resulting in a continuation of the ‘bull flattening’ theme of last week with implied yields on Treasury Bonds down by another 3bps. This means that when trading resumes today the 30-year bond will fall below 3% for the first time since early May 2013.
In stocks, a fairly flat performance by equities as of NY lunchtime has given way to significant afternoon losses. News of an Ebola scare in Boston as an Emirates plane arriving from Saudi Arabia rather than Africa is reported to having been quarantined with some passengers displaying flu like symptoms. This is seen to be largely responsible for the late-day sell-off with the Dow falling over 200 points again and the S&P losing another 1.6%.
The further fall in Bond Yields was the key driver for currencies yesterday. Whereas the Dollar was attracting safe-haven support in the face of plunging global equities and lower bond yields, now the US Dollar is suffering from a strengthening conviction that the Fed may play it ‘lower for longer’ on deepening concerns about global growth and the feedback loop to the US economy.
Also of note yesterday are comments from Bundesbank President Jens Weidmann who said that while the ECB is unanimous in its commitment to price stability this did not extend to unqualified support for unconventional policy measures to achieve this goal. Weidmann says that some areas of ECB measures are in a ‘grey area’of its mandate referring specifically to risks of banks packaging low quality assets for subsequent sales to the ECB. Finally Weldmann also says a budget let off for France would damage credibility.
This morning on the economic front we have UK CPI and PPI at 9.30. This is followed at 10.00 by the extremely important German ZEW Survey especially after the weak data already reported earlier this month. At the same time the Euro-Zone will release its latest Industrial Production. The only data of note due from the US is the NFIB Small Business Optimism at 12.30.
December S&P 500
The US stock market has had its worst three days since November 2011 while the VIX has jumped another 12% to 24.64 which is its highest level in 21/2 years with the market closing at my 1865/1875 strong support zone that I mentioned yesterday. The volatility has been incredible since the market made its top on September 19 and especially since last Wednesday following the FOMC Minutes release. The S&P has now lost over 100 handles since lunchtime on Thursday and nearly 150 handles in total in the last three weeks.
Yesterday after I posted the S&P started to rally hard which enabled me to cover my long 1887 position at 1902. The market made a high at 1906 before fluctuating for most of the day until the dramatic last hour of trading when when the S&P got slammed into the close as the market fell nearly 30 handles in this time. I bought the S&P just before the close at 1971 and I will leave a 1963 stop on this position as the market is due for a decent bounce given how oversold we are currently trading. The McClellan Oscillator closed at -214 again highlighting how oversold the market is at this time. The S&P will have strong resistance from 1904/1910 and I will also be a seller in this region with a 1915 stop.
Euro/USD
Very frustrating that I got stopped out of my long Euro position last Friday as the Euro continued its recent revival and I am still flat. Remember when we get a series of low Daily Sentiment Index readings for any instrument it is only a matter of time before we get a counter-trend rally as shown by the recent moves in Gold and the Dollar. Today I will move my buy area for the Euro to 1.2650/1.2680 with a 1.2625 stop which is just below yesterday’s low.
US Dollar Index
The Dollar had a nice sell-off late yesterday afternoon with the market eventually trading down to my 85.30 buy level. I will look to cover this position on any rally back to 8570. Subsequently if I manage to cover my long position I will look to re-set on any drop to 84.90/85.20 with a 84.60 stop.
December DAX
After I posted yesterday morning the Dax on two occasions just missed my 8710 buy level before having substantial rallies with the latest sell-off last night just missing my buy level by 5 points. However after the early morning rally yesterday the Dax traded higher to my 8850 sell level and following a nice sell-off from this area I was able to cover this position at 8790 and I am now flat. Today I will again be a small seller on any rally back to 8880/8925 with a wider 8970 stop. The 8700 level is proving to be strong support at this time and today I will again be a small buyer on any dip to 8680/8710 with the same 8640 stop.
December FTSE
No change as I am still a buyer on any dip to 6230/6270 with a 6210 stop. I still do not want to be short the Ftse at this time given how overextended the Ftse is currently trading.
Dow Rolling Contract
The Dow had another really bad trading session with the market now down nearly 1100 points since its high on September 19. Yesterday the Dow broke the 14 year trend-line that I mentioned over the last few months with the market also closing 260 points lower than its December 31 high at 16581. So far the S&P has held its 1851 closing high from last year.
The Dow plan worked well yesterday as after I posted the market traded down to my 16480 buy level and after a decent counter-trend rally developed I was able to cover this position at 16540 and I am now flat. It is incredible that the Dow traded in nearly a 300 point rally since I posted yesterday morning with the market loosing over 200 points in the final hour of trading. Today I will be a small buyer on any dip to 16300/16340 with a 16240 stop. I will also be a small seller on any rally back to 16540/16590 with a 16650 stop. Given the volatility I am trading in smaller position size with larger stops.
December BUND
The price action for the Bund was not good yesterday as I had expected the Bund to rally a lot higher given how weak the equity markets are.One concern for the bulls is the extremely high Daily Sentiment Index reading for the US Bond market which has jumped to 95%. This means that only 5% of traders believe the Bond market will decline over the coming weeks. For this reason I do not want to be long the Bund at this time and I will lower my sell level to 150.40/150.70 with a 150.90 stop.
Gold Rolling Contract
No change as I am still flat Gold as so far Gold has failed to penetrate the key 1240/1250 resistance level. I am going to stay flat especially with Silver failing to break above last week’s 17.77 high as I want to see how the Gold price reacts to this key resistance area.
Silver Rolling Contract
I have decided to cover my long 16.95 position this morning at 17.50 as I am very disappointed with the price action of Silver over the last two weeks. Today I will again be a small buyer on any dip to 16.80/17.10 with the same 16.45 stop.
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