We come in this morning and it has been something of a sideways/choppy past 24 hours of trading. The Dollar DXY index is little changed overall amid nothing too new on the data front, no Fed speak now with the media lock down ahead of next week’s FOMC, and US stocks little changed on a net basis for yesterday’s trading session after closing at new all-time highs last Friday. For what it is worth, the NY Empire State Manufacturing Index for July printed at 9.8 after 19.8 (f/c 15) though this is very much second tier.
To mark my 1375th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 45 points yesterday and is now ahead by 624 points for July, having made 1023 points in June, 1071 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 1700 points.
The Australian Dollar has continued to sell-off after closing in NY last Friday at its highs. It eased off during the Asian session, getting some negative spill-over from New Zealand after RBNZ Deputy Governor Bascand’s somewhat-hidden reference buried in a speech text that a “lower NZ dollar would help rebalance growth”. The fact that such language was deliberately omitted from the press release suggested that the Bank was not trying to draw attention to the NZD. Indeed, a careful reading of the speech in fact gave a positive NZD story, with a chart showing the NZD not keeping up with NZ’s record terms of trade and Bascand pointing to the improvement in NZ’s net foreign liabilities to GDP ratio as suggesting the exchange rate may be more “sustainable”.
Clearly better-than-expected Chinese GDP for the June quarter, buttressed by better growth reports for Industrial Production, Retail Sales and Fixed Asset Investment, was also AUD-supportive. After languishing below the figure for most of the APAC session, it did test higher in the London session, again to at around the 0.7835 level, but has since pulled back to trade at 0.7790 as I go to print.
It would not have been surprising if the AUD had seen another leg up from real money flows on the back of the positive Chinese economy reports together with a move higher yesterday in the iron ore price complex. The spot benchmark Qingdao price is this morning at $66.81/t (+$1.07), Dalian futures prices for iron ore also getting support along the curve, the longer-dated May 18 contract up 2.37% against an increase in the spot price of 1.63% and the spot futures Dalian iron ore price of a tidy 4.79%. The spot Chinese steel rebar futures price inched higher by 0.17%, longer-dated futures more mixed-to a little higher, mostly, along the curve. Coal prices were also somewhat higher overnight, as were base metals, LME Copper up 1.18%.
It is of course conceivable that after the market ran on that reference to the NZD yesterday, there might be a degree of market trepidation ahead of the RBA Minutes. Would the RBA indicate more concern? Unlikely. The post-July Board Media Release contained absolutely no such new concern, again exactly repeating the reference that “An appreciating exchange rate would complicate this adjustment” (afforded by the depreciation of the exchange rate since 2013).
Otherwise it was an extremely quiet trading session on both sides of the Atlantic as the market waits for the ECB Meeting and Dragi press conference on Thursday. Meanwhile the VIX again closed below 10.00, a situation that cannot last in my opinion.
This morning on the Economic Front we have the ECB Bank Lending Survey and the Survey of Professional Forecasters at 9.00 am. This is followed at 9.30 am by UK CPI, PPI and the House Price Index. At 10.00 am we have Euro-Zone CPI and both the German and Euro-Zone ZEW Survey for Current Situation/Expectations. Next we have US Import/Export Price Index at 1.30 pm and the NAHB Housing Market Index at 3.00 pm. Finally just before the close at 9.00 pm we have the Net Long-Term TIC Flows.
September S&P 500
The S&P just missed my 2463 sell level before trading to a low at 2454, only for the market to firm into the close and I am still flat. The S&P is severely overbought and is due a correction but as Keynes famously said ‘’markets can remain illogical longer than I remain solvent’’ comes to mind at this time. It is possible that the S&P rallies further but given all the cross currents the end game is getting closer. However as I have consistently said over the past few years until we get a sell extreme that lasts for more than a few days this market is still a buy on dips. Today I will now raise my buy level to 2442/2448 with a 2437 stop. I will also raise my sell level slightly to 2465/2471 with a 2476 stop.
EUR/USD
On June 29 the Daily Sentiment Index for the Euro jumped to 93% bulls, matching a 4 ½ year extreme from February 1, 2013. That day started a 7% price decline over the following six weeks. One has to go back more than six years to April 27, 2011, to find a higher level of trader optimism (96%). Back then the Euro topped 5 trading days later on May 4, 2011 and started a 19% decline over the next 14 months. I am not saying that the Euro is going to crash from here but the odds are increasing that we will soon get a meaningful sell-off in the Euro over the coming weeks. I have been bullish of the Euro for most of the past 12 months and it is only in the last week that I have started to initiate sell ranges into my Daily Calls. Again we may spike higher first ahead of the ECB on Thursday but given how severely overbought the Euro is trading we should soon start to see the market correct. As I am still long the Dollar below I will now raise my sell level slightly for the Euro to 1.1510/1.1550 with a 1.1585 stop. As I go to print the Euro has just rallied to my 1.1530 sell level. I am only short in small size and will not add to this position.
September Dollar Index
The Dollar made an intra-day low at 94.80 yesterday before closing marginally higher. The leveraged Funds now hold their largest short position in the Dollar since July 2014, just before the Dollar started a 9-month rally. As I mentioned in yesterday’s commentary, sentiment remains compatible with the start of a Dollar advance and for this reason I continue to hold my existing long 95.15 position. In a change to yesterday’s commentary I will now add to this position on any move lower to 94.50 with a tight 94.20 stop.
September DAX
My DAX call worked well as the DAX which opened firm got slammed a couple of hours into European trading to my 12550 buy level with a 12532 low print before rallying back to a high at 12620. This rally higher enabled me to cover my long position at my 12595 T/P level and I am now flat. Today I will again look to buy the DAX on any dip lower to 12430/12490 with a 12385 tight stop. Despite the negative price action I still do not want to be short the DAX at this time especially as I expect the Euro to eventually resume trading lower over the coming weeks.
September FTSE
When trading the FTSE at this time you have to keep an eye on Sterling as the markets is trading in tandem based on the movements in the Pound. If Sterling weakens the FTSE firms and vice-versa. I am still flat the FTSE and today I will leave my buy range unchanged from 7260/7290 with the same 7230 stop.
Dow Rolling Contract
The Dow underperformed both the S&P and NASDAQ yesterday which was to be expected given the fact that the Dow is currently trading outside the top of its Daily Bollinger Band. Unfortunately the Dow missed my 21710 sell level with a 21676 high print and I am still flat. I am not going to chase this market lower and today I will leave my sell level unchanged from 21710/21780 with a 21830 stop. Again if I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally higher to 21850/21920 with a 21980 stop.
September BUND
The BUND traded in a narrow range yesterday and I am still flat as the market basically goes on hold ahead of Thursday’s Key ECB Meeting. Today I will raise my buy level slightly to 160.70/161.05 with a 160.40 stop.
Gold Rolling Contract
Gold has recovered well off last week’s 1204 low print and I am still flat. I much prefer to own Silver rather than Gold especially given how much cheaper Silver is trading in comparison to Gold. Having said all of that I have to respect the price action in Gold over the past week and today I will now raise my buy level to 1214/1221 with a 1207 stop.
Silver Rolling Contract
Silver trading has been more volatile over the past few months. When I exited most of my Silver holdings at 18.50 before the market topped at 18.65, Silver has declined 19% to last week’s 15.17 low print. Before we had this sell-off the Managed Money Position had a record net-long 98,845 contracts. This was unsustainable and was one of the main reasons why we stayed out of Silver for a large part of this sell-off. Incredibly this net position has now moved to a net-short 5402 contracts, which is more than a 105% reversal. This is the largest net-short position in nearly two years. The end result is we should see Silver build a base before pushing substantially higher over the coming months. As a result I will now raise my buy level in Silver to 15.70/16.10 with a 15.40 stop.
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