The US Dollar recovered lost ground yesterday spurred on by some Euro weakness which was on the back foot from just after I posted. This was compounded by comments from ECB Officials, Mersch and Dragi. Mr Mersch, who is Governor of the Luxembourg Central Bank, said the ECB’s unconventional measures could theoretically include Sovereign Bond purchases. Later ECB President Dragi made the statement more explicit before the European Parliament in his Quarterly Testimony. He said that Sovereign Bond purchases were an option for the Bank noting ‘other unconventional measures might entail the purchase of a variety of assets, one of which is Sovereign Bonds’. Periphery European Sovereign Bonds rallied on this news. The Euro slipped to a low of 1.2450 before recovering this morning.
In the US, data was mixed with the Headline Industrial Production growth somewhat underwhelming, down 0.1%, whilst the Empire Manufacturing Index came in strong at +10.16 for November versus +6.12 last month. One story getting some wire coverage this morning is a research paper from an economist at the San Francisco Fed that expects low Inflation to persist through 2016. Persistent effects of the financial crisis will keep inflation low the paper found with inflation risks tilted to the downside.
This morning on the economic front we have UK CPI at 9.30 am. This is followed at 10.00 am by the very important ZEW Survey which will release its latest Current Situation/Future Expectations. At 1.30 pm we have US PPI and finally at 6.30 pm we have the latest US Net Long Term TIC flows. The only speaker of note today is from Fed Member Kocherlakota who is due to speak on Monetary Policy at 3 pm.
December S&P 500
The S&P has literally stopped trading over the last 6 trading sessions. Today’s cash close at 2041.32 keeps intact the historically tight closing range during this period. In my view the S&P is either exhausted or is due one more leg up but either way the slope of the advance from the October 15 low is too steep to sustain much longer. Interestingly during this very quiet trading range the McClellan Oscillator has declined every day and it is now just barely in positive territory at +16.
After I posted yesterday morning the S&P rallied up to my 2038 sell level before having a small sell-off down to 2031.5 on the weak Industrial Production release which enabled me to cover this position at 2033 and I am now flat. The next major resistance is from 2050/2055 and today I will again be a seller on any further rally to 2048/2053 with a 2058 stop. I will continue this strategy of selling spikes until we get a sell extreme that sticks. My only interest in buying this market is from 2023/2028 with a 2018 stop.
Euro/USD
Unfortunately after I posted I was stopped out of the balance of my 1.2430 long position from last Friday at 1.2480. I am impressed that the Euro is back trading higher despite the comments from Mersch and Dragi yesterday as I believe the Euro is trying to bottom for at least a short term rally. For this reason I have bought the Euro again this morning at 1.2478 and I will leave a tight 1.2445 stop which is just below yesterday’s low. If I am stopped out of this position I will be a more aggressive buyer from 1.2370/1.2400 with a 1.2325 stop.
US Dollar Index
No change as I am still short from last Friday at 87.90 with the same 88.20 stop.
December DAX
When I started to write my update yesterday morning the Dax was trading at 9150 and now we are trading back above the 9360 level this morning. Despite the very positive price action for the Dax I find it very hard to go long given the awful inflation outlook and growth prospects for Germany coupled with the growing tensions in Ukraine. After I posted yesterday morning the Dax traded higher to my 9275 sell level and thankfully after a brief sell-off after the US markets opened I was able to cover this position at 9240 and I am now flat. Today my only interest in selling the Dax is on a further rally to 9430/9460 with a 9510 stop. I still do not want to be long the Dax at this time.
December FTSE
The FTSE continues to push ahead and just after I posted yesterday morning I was stopped out of my short 6620 position for a small loss at 6655 and I am now flat. The FTSE is now very overbought on a Daily and Weekly basis and this morning I will again be a small seller on any further rally to 6710/6735 with a 6760 stop. Given how overbought the FTSE is I do not want to be long at these levels.
Dow Rolling Contract
The Dow plan worked well yesterday as shortly after I posted the Dow rallied to my 17660 sell level before having a small sell-off which enabled me to cover this position at 17620 and I am now flat. Just like the S&P above the plan for the Dow is to sell rallies with a tight stop until we get a decent sell extreme that sticks. Today I will again be a seller on any further rally to 17720/17770 with a 17810 stop. Given how overbought and over extended the Dow is I do not want to be long the market at this time.
December BUND
No change as I am still short from last week at 151.78. Today I will lower my stop to 152.10 which is just above yesterday’s high.
Gold Rolling Contract
Thankfully Gold is back trading higher this morning as it approaches the key 1200/1204 resistance level. A break and close over 1204 will be very positive. I am still long half my position from last Friday at 1157 and today I will raise my stop on this position to 1180 which is just below yesterday’s low.
Silver Rolling Contract
No change as I am still long at 15.30 and 15.80 with the same 15.75 stop. If Silver breaks 16.60 I will raise my stop to 16.30 on the whole position.
Nymex Crude December
Just like Gold and Silver, Nymex is back trading higher this morning after a brief sell-off yesterday. I am still long half my position from last Friday at 73.52 and today I will raise my stop to 74.60 on this position which is just below yesterday’s low. If I am stopped out of this trade I will be a more aggressive buyer from 73.50/74.00 with a 72.80 stop.
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