Speculation that the Fed will start tapering this week continues to grow but equity markets shrugged off these fears posting strong returns on both sides of the Atlantic. The Dow and S&P managed to close up 0.8% and 0.65% respectively whilst European markets were stronger, posting an average gain of 1.5%. We had more positive data from the US ahead of today’s FOMC Meeting with any announcement due at 7 pm tomorrow. Industrial Production rose 1.1% in November which is the strongest monthly gain this year and although there was a large rise in weather related utility output Manufacturing Production was still up a solid 0.6%. Non Farm Productivity was solid as expected, at 3%,,whilst the Empire Manufacturing Index improved from -2 to +1 in December.
Markets were also supported by solid readings for the Euro-Zone Manufacturing PMIs with the latter PMI rising to 52.7 in December from 51.6 which is its highest reading since mid-2011. German Manufacturing was also strong, rising to 54.2 from 52.7 last month. In contrast the Services PMIs eased back but are still at solid levels.
Today is another busy day for economic data. This morning at 9.30 am we have UK CPI and PPI followed at 10.00 am by Euro-Zone CPI and the very important ZEW Survey from Germany. Later at 1.30 pm we have US CPI and the NAHB Housing Market Index.
March S&P 500
The mantra of never been short the S&P ahead of an important event such as the FOMC Meeting was clearly evident again yesterday as the S&P had an incredible 30 handle rally off the lows made early yesterday morning to the highs made in mid-afternoon. I covered my 1764 long position way too early at 1778 as the market traded up to 1791 before sellers returned. Today I have rolled from the December contract to the March contract which is trading at 6.2 handle discount to the cash S&P. I still do not want to set levels to go short the market until tomorrow as I still think despite the huge rally yesterday that the market can rally some more ahead of the FOMC announcement tomorrow night. So today I will be a buyer of the March contract on any dip to 1771/1776 with a 1769 stop. If I am taken long and subsequently stopped out I will use any subsequent 5 handle rally to reset my long position with a stop just below whatever new low is put in.
Euro/USD
I still believe the US Dollar is trying to put in a bottom in the market and it probably needs to see an announcement for QE Tapering to confirm this view. I am still long the March US Dollar Index and I will leave my stop the same at 79.90 which is a breakeven on this trade. If I am stopped out I will be a more aggressive buyer on any dip to 79.60 with a 79.25 stop. I will also be a small seller of the Euro on any further rally to 1.3840/1.3870 with a 1.3890 stop.
December DAX
Certainly this 8980 level is proving itself to be a great buying opportunity every time we test it and yesterday was no exception. Just after I wrote my commentary the market roared to the upside helped by the strong PMI data from Germany and the Euro-Zone. I covered my 8990 long position from yesterday morning too early at 9090 as the Dax went on to trade another 100 points higher for an incredible 200 point move off the lows made at the open. Generally when you get such a huge move off important support levels the market tends to follow this move higher after initial profit taking. This morning I will be a small buyer of the Dax from 9100/9130 with a tight 9075 stop. I still do not want to be short the market at this time.
December FTSE
The FTSE worked really well yesterday as I was able to cover my 6420 long position at 6475 and I am now flat. Yesterday was another great example of what fantastic signals the Bollinger Band and Williams Index are when they set up together. These buy signals showed up in the S&P, DOW and the FTSE yesterday morning. I still like the FTSE as long as we can stay over 6460 and this morning I have bought the market again at 6485 with a tight 6458 stop.
Dow Rolling Contract
Just as I posted yesterday morning the Dow took off to the upside and I am still flat. I still like the Dow ahead of tomorrow and today I will be a small buyer on any dip to 15830/18630 with a 15795 stop. I still do not want to be short at this time.
March BUND
No change as I am still a small buyer on any dip to 139.90/140.10 with the same 139.75 stop.
Gold Rolling Contract
Gold had another nice rally yesterday but is still stuck in the 1220/1260 trading range that has prevailed over the last week. Today I will raise my buy level to 1225/1232 in small size with a tight 1218 stop.
Silver Rolling Contract
Very frustrating as Silver just missed my 19.30 buy level before rallying nearly 100 points to 20.30. As you know I still like Silver and today I will raise my buy level to 19.60/19.80 with a 19.35 stop which is just below yesterday’s low.
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