Currency markets are consolidating ahead of Fed Chairman Bernanke’s mid-week testimony on economic outlook. A comment from Japanese Economic’s Minister Amari, in which he said that if the Yen weakens further it will negatively impact peoples lives, resulted in Yen strength/Dollar weakness. US Treasuries ended little changed, as were US Equities. Gold and Silver rallied for once whilst data flow was light and inconsequential. Speaking in Chicago, noted dove, Fed President Charles Evans sounded upbeat about the US Economy saying it had been improving quite a lot. He said that the labour market has been much, much better and that the unemployment rate is going to continue to come down. In relation to adjusting QE, he said we need a monthly employment growth of 200k (it averaged 208k in the 6 months to April) to be maintained, and if it continues over the next 6 months then he would be amenable to discussions about adjusting the flow of purchases downward. For now he expects self-sustaining growth and escape velocity (from QE) in 2014, a strong hint that he currently thinks 2014 as the time when he would be supporting tapering QE down. The stumbling point for now is Fiscal Policy, with the US Budget Sequester having kicked in from March 1st, as an emerging impediment to the economy. If it can get through the next quarter in decent shape, it sounds like Evans (a voter this year) would be open to dialing back QE.
Today on the economic front, we have UK ONS House Price Index and CPI this morning. Spain is due to sell 3 and 9 month Treasury Bills. We have nothing of note from the US except the Fed’s Bullard speaks on Monetary Policy this morning from Frankfurt whilst later this afternoon the Fed’s Dudley speaks in New York.
June S&P 500
The S&P worked well yesterday on what turned out to be a very quiet trading session as the market awaits Bernanke’s testimony tomorrow. The S&P rallied up to my 1670 sell level and I was able to take profit at 1663 before the close and I am now flat. There is a small trend line that extends from 1673/1680 and it is possible that the market may test this line before rolling over. Today I will be a seller in this area with a 1685 stop. If I am stopped out I will use my ‘5 handle rule’ to go short again (see below) with a stop at whatever high is put in.
For new members my ‘5 handle rule’ means that if I am stopped out of a long position and the market subsequently falls 5 handles (5 full points) I will go short again with a stop at whatever high is put in. For example, lets say I go short the S&P at 1678 and I am stopped out at 1685 with the market making a new high at 1686, before selling off. If it drops to 1681, I will go short again at 1681 with a 1686.25 stop – this trade will only work once!
I will still look to buy the S&P on any drop to 1650/1654 with a 1648 stop.
Euro/USD
Very unlucky yesterday as the market just missed my 1.2840 buy level with a 1.2844 low before having a nice rally. Well at least we got the direction right as we did not want to be short the Euro. Today I still like the Euro and I am a small buyer on any dip to 1.2850/1.2875 with a 1.2835 stop. Once again, I do not want to be short the Euro as the market tries to correct its oversold readings.
June DAX
No change. I am still a buyer on dips to 8360/8390 with a 8335 stop.
June FTSE
The FTSE just missed my 6680 buy level with a 6685 low before trading higher. Today I will raise my buy level to 6680/6700 with a 6675 stop. I will also look to sell the market on any rally to 6750/6770 with a 6780 stop.
June BUND
The Bund made a high of 145.35 before rolling over and we are now testing the 144.20/144.40 support zone. Today I will be a small buyer on any dip to 144.10/144.25 with a 143.95 stop.
Nasdaq 100
The Nasdaq rallied to my 3030 sell level and I am now short. I will lower my stop to 3050 as I look for this market to trade lower. If I am stopped out at 3050 I will be a more aggressive seller on any further rally to 3060/3080 with a 3105 stop.
Silver Rolling Contract
Silver certainly had a nice rebound off the 21.30 support zone as the market rallied nearly 200 points from here. Today I will be a buyer of Silver on any dip to 21.80/2220 in small with a 21.40 stop.
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