Stocks climbed after the Trump administration signalled progress on trade negotiations and speculation grew that major central banks will shore up their economies. The US Dollar rallied to this year’s high. The S&P 500 Index rose for a third day, led by chipmakers, as U.S. Commerce Secretary Wilbur Ross said the nation will delay restrictions imposed on some business operations of China’s Huawei Technologies Co. The Treasury market was unfazed by President Donald Trump’s call for the central bank to cut rates by “at least 100 basis points.” Bunds tumbled as Germany was said to be preparing fiscal stimulus measures. Oil climbed as a drone attack in Saudi Arabia highlighted simmering Middle East tension. Gold fell. Trump’s top economic adviser, Larry Kudlow, will speak with business leaders this week amid concerns about the rising odds for a recession, the trade war and whipsawing markets. Federal Reserve Bank of Boston President Eric Rosengren pushed back against further rate cuts, arguing he is not convinced that slowing trade and global growth will significantly dent the economy. Investors await Fed Chairman Jerome Powell’s remarks about the challenges for Monetary Policy at the Jackson Hole symposium this coming Friday.
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Equities
The week started on a positive note as the news on Huawei was seen as encouraging for the long-awaited trade pact between the world’s two largest economies. Still, the company said the temporary relief doesn’t change the fact that it’s been treated “unjustly.” The announcement of a reprieve followed a tweet from Trump over the weekend indicating the U.S. was “doing very well with China, and talking,” but suggesting he wasn’t ready to sign a deal. Equities plunged last week after the key U.S. 2-year and 10-year yield curve briefly flipped for the first time since 2007, spurring fears of an economic downturn. But this correction is likely to be short-lived and American stocks will recover as soon as early September, according to JPMorgan Chase & Co. strategists, as stimulus from major central banks outweighs worries about a slowdown. The S&P 500 rose 1.2% to close at 2,923, while in Europe the Stoxx Europe 600 Index increased 1.1%.
Currencies
Here is a summary of the main changes in F.X. Markets:
The Bloomberg Dollar Spot Index gained 0.3%.
The Euro decreased 0.1% to $1.1078.
The Japanese Yen dipped 0.3% to 106.65 per dollar.
Bonds
Blue-chip U.S. companies are likely to see a surge in demand for their bonds as the rising amount of negative-yielding debt globally forces more overseas investors to seek higher returns in Dollar assets.The yield on 10-year Treasuries gained five basis points to 1.60%. Meanwhile in Europe, Germany’s 10-year yield jumped four basis points to -0.65% and Britain’s 10-year yield climbed less than one basis point to 0.47%.
Commodities
The Bloomberg Commodity Index dipped 0.1%.
West Texas Intermediate crude increased 2.4% to $56.21 a barrel.
Gold for December delivery fell 0.8% to $1,511.60 an ounce; the spot price dropped below $1,500.
This morning on the Economic Front we have German PPI at 7.00 am and this is followed at 10.00 am by Euro-Zone Construction Output. At 11.00 am we have the UK CBI Industrial Trends Survey. For the second consecutive day we have no US Data as we wait for the FOMC Minutes tomorrow evening.
September S&P 500
After the S&P traded the whole of my sell range for an average short position at 2920 the market subsequently made a low for the day at 2915 and I used this small move lower to exit any short position at my revised 2918 T/P level and I am now flat. Earlier the Dow had generated a nice profit and I wanted to hang onto these points after Friday’s non-event. The S&P made an intra-day high of 2932 before selling off into the close. This move higher closed the 2926 ‘’Open Gap’’ mentioned in yesterday’s commentary from last week. However yesterday’s large move higher has left another Gap from last Friday’s close at 2891.25 to yesterday afternoon’s 2915 low print. This is a large Gap which will be filled at some stage. Today I will now raise my buy level to 2887/2897 with a 2879 stop. The S&P has strong resistance from 2940/2952 and I will continue to be a seller in this area with a 2960 tight stop.
EUR/USD
Frustratingly the Euro just missed my 1.1120 T/P level with an intra-day high of 1.1114 before selling off into the close. The Daily Sentiment Index for the Euro has fallen to 13% bulls, so a further sell-off in the Euro will result in a single digit reading for the Euro. Today I will lower my T/P level on my 1.1098 long position to a breakeven and if this happens I will again look to buy the market from 1.1000/1.1040 with a 1.0965 stop. For now I will leave my stop on this existing long position at 1.1049.
September Dollar Index
The DSI for the Dollar closed at 86% bulls last night. As a result I am happy to be a seller on any further rally and today I will leave my 98.45/98.85 sell level unchanged with the same 99.10 stop.
September DAX
I am still flat the DAX and today I will raise my buy level to 11370/11450 with a 11295 stop. I still do not want to be short the DAX at this time.
September FTSE
As I still think we are close to a tradeable low in the Pound I am reluctant to chase the FTSE market higher. Therefore I will leave my 7000/7040 buy level unchanged with the same 6965 stop.
Dow Rolling Contract
My Dow plan worked well with the market rallying to my 26230 sell level before selling off to my 26150 T/P level and I am now flat. This rally higher resulted in the VIX falling another 9% to close at 16.84. The Dow has now rallied nearly 1000 points since last Thursday’s low as yet again anyone shorting the market gets slammed if they hold onto their short positions. Today I will again look to sell the Dow from 26260/26420 with a 26510 stop. If I am taken short I will have a T/P level at 26180.
September NASDAQ
I am still flat the NASDAQ. The market has strong resistance from 7700/7760 and I will be a seller on any rally to this area with a 7805 stop.
September BUND
This has been a frustrating market for me over the past two weeks. I had the correct view of selling rallies but each time I got short I was stopped out. Just to rub my nose in it the market fell 100 points to close at 178.16 last night. Today I will lower my sell level to 178.95/179.45 with a tight 179.80 stop.
Gold Rolling Contract
I am still flat the Gold market which has fallen as expected over the past few days as indicated by the 98% reading in the DSI Index. Gold has support below the market from 1465/1475 and I will be a buyer in this area with a 1457 stop.
Silver Rolling Contract
Silver closed 1.62% lower yesterday as the market just fell shy of my 16.40/16.80 buy range and I am still flat. Today I will leave my buy level unchanged with the same 16.05 stop. Again if I am taken long I will have a T/P level at 17.01.
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