US equities have started the week on a solid footing boosted by the prospect of US tax reform becoming law later in the week. The US Dollar is softer across the board and the US Treasury Yield curve is steeper with the move led by the back end of the curve. Politics and voting has been yesterday’s theme with the House now expected to vote on the Tax bill tonight while there is still some speculation as to whether the Senate has enough votes. Senator McCain will not be able to vote on the Bill due to ill health, but Corker, Rubio and Collins are reportedly on side.
To mark my 1500th 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 in this offer can you please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 32 points yesterday and is now ahead by 751 points for December, having made 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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Meanwhile Republicans and Democrats are still haggling the terms of a temporary spending bill that needs to be passed before Friday if a government shutdown is to be avoided. The later may be a factor weighing on the USD which was unable to perform despite a rise in US equities and US Treasury yields. The USD has also struggled against EM currencies with the South African Rand (+2.53%) and Chilean peso (2.39%) leading the way. Politics and voting again the big driver with conservative and business friendly Piñera elected president in Chile while Ramaphosa was elected ANC leader, putting him on track to become South Africa’s next president.
Materials and Telcos drove the gains in the S&P but just like Friday, small companies are again outperforming with the Russell 200 index up 1.07% while the S&P500 is +0.61%. Gains in small companies probably reflect their domestic focused nature and the fact that they are likely to benefit the most from US tax reform.
While holiday mode is a factor, USD softness is also reflective of positive factors driving other currencies. SEK is the outperformer, up over 1% amid expectations that the Riksbank will announce an end to its QE programme tomorrow. Following two days of declines the Euro has staged a small recovery briefly trading above 1.18 after I posted yesterday morning with the three month Eurobasis retreating to -87bps after blowing out over -100bps on Friday. Sterling has also managed to perform, up 0.47% following remarks from PM May that a senior EU negotiator made it clear that the UK can have a bespoke trading arrangement with the EU.
The Australian Dollar is up smalls (+0.27%) and remains comfortably trading in the 0.76/0.77 range. Yesterday’s Commonwealth budget update helped the AUD perform with the new numbers showing an improvement in this year’s projected budget deficit thanks to stronger company and superannuation taxes.
As for commodities, oil prices are a little bit softer (WTI – 0.73%, Brent -0.33%), Copper is a little bit stronger (+0.33%) and Iron ore is the big winner, up 2%.
In other news, ECB’s Liikenan said its forecasts for growth and prices were backed by the assumption that strongly accommodative policy continues throughout the forecast horizon. He added that asset purchases can continue after September ‘if inflation doesn’t appear to be accelerating to the target without monetary policy support.’ Yesterday the final HICP came in as expected and in line with the flash estimate of 1.5% (headline) and +0.9% (core).
Fed President Kashkari (non-voter) mentioned the flat US yield curve was one of the reasons he dissented against a rate hike last week. Meanwhile Fed Williams (a 2018 voter) said, ‘something like three rate increases next year and two to three increases in 2019 – that seems like a reasonable view’.
This morning on the Economic Front we have German IFO Business Climate and Current Assessment/Expectations at 9.00 am. This is followed at 10.00 am by Euro-Zone Construction Output and Labour Costs. Finally at 1.30 pm we have US Housing Starts, Building Permits and the Current Account Balance.
March S&P 500
Yesterday’s aggressive move higher in the S&P has left a large ‘’Open Gap’’ from last Friday’s close at 2682 to yesterday’s Chicago low of 2692.50. As you know all ‘’Open Gap’s get filled at some stage and is one of the reasons why I am still short from early yesterday morning at 2688 which is still in my projected target level of 2680/2700 outlined a few months ago. Today I will only add to this position on any further move higher to 2702 with a higher 2708 stop. Today I will now raise my T/P level on this position to 2685 and if my second sell level at 2702 is filled I will then raise my T/P level to 2693. The S&P is severely overbought and trading less than 100 Handles from its 3rd Standard Deviation at 2792. However I know it is difficult to be short as we are in the seasonally strongest periods of the year and one reason why I am happy to go flat if any of the above scenarios play out.
EUR/USD
I am still flat the Euro which continues to trade in a narrow range. Today I will now raise my buy level slightly to 1.1725/1.1760 with a higher 1.1695 stop. I still do not want to be short the Euro at this time.
March Dollar Index
The Dollar came close to my 92.80 initial buy level before having a small rally and I am still flat. Given the importance of the 92.50 support level I will leave my buy level unchanged from 92.45/92.80 with the same 92.15 stop.
March DAX
Just as I posted yesterday morning the DAX finally broke its key resistance level at 13200 with the market trading higher to my 13310 sell level before having a small sell-off and this move lower enabled me to cover this short position at my revised 13278 T/P level and I am now flat. The fact that the 13200 level was finally broken is key to the next move in the DAX. Today I will look to buy the market on any dip lower to 13160/13220 with a 13115 tight stop. Even though the DAX has underperformed the US Indices over the past few months the market is very close to its all-time high at 13533 which I would expect to be challenged before the end of the month and for this reason I have no interest in going short the market at this time.
March FTSE
After weeks of sideways price action the past two trading sessions has led to a sharp move higher in the FTSE as the Santa rally takes hold. I am still flat and today I will now raise my buy level to 7425/7455 with a 7395 stop.
Dow Rolling Contract
Frustratingly the Dow just missed my 24895 sell level with a 24875 high print before selling off 100 points and I am still flat. The Dow is severely overbought after this incredible 21% rally so far this year. Yesterday the breath of the market finally improved with the McClellan Oscillator closing at +65. Given how near we are to the round number resistance at 25000 I will now raise my sell level slightly to 24930/25040 with the same 25140 stop. Even though we are in December I still do not want to be long the Dow at this time especially with sentiment levels so stretched.
March NASDAQ
I am still flat the NASDAQ and today I will raise my sell level slightly to 6590/6635 with a 6680 stop.
March BUND
The Bund traded in a narrow range yesterday and I am still flat. One of the great mysteries to me is the incredible low yields for European Bond markets especially with growth picking up across the Euro-Zone but to see some of the European Junk Bonds trading below US 10 Year Treasuries is insane given the level of risk associated with owning these Bond Markets. However just like the US Indices above until we get a sell extreme in Bonds that lasts for more than a few days it is difficult to be short. For this reason I will not chase the Bund lower and today I will only lower my sell level slightly to 163.70/164.05 with a 164.35 stop.
Gold Rolling Contract
Gold continues its slow recovery of the recent 1236 low print last week as we are now in the middle of the 1260/1270 resistance level. As I have mentioned over the past few days both Gold and Silver have put in a nice tradeable bottom in the past three Decembers and the price action over the past few days in both metals suggests that this pattern will continue this year. Today I will now raise my buy level to 1244/1252 with a 1238 stop.
Silver Rolling Contract
Silver just missed my buy level yesterday before trading slightly higher albeit in a narrow range. Interestingly since the week of November 13, Managed Money Accounts (speculators) have gone from being net-long 68,016 contracts to being net-short 5424. This 108% reversal occurred in a relative short period of time when Silver declined by 11% to the $15.48 low on December 8. This net-short Silver position does not prevent Silver from falling further but with the Daily Sentiment Index reading hitting 10% last week I have now decided to buy Silver here at 16.15. The market has key support at 15.80 and I will add to this position on any further dip to this level with a 15.55 stop.
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