Commodity prices continued to be hit yesterday, leading to the overall Commodity Index falling to a 5 year low. Iron Ore led the decline, falling below $80 for the first time since June 2009. The fall in commodity prices led to the Australian and Canadian Dollar accelerating lower with the Aussi Dollar now back below $89.00 for the first time since March. However despite the commodity currencies being down against the US Dollar, the Dollar Index is little changed. The Euro which having spiked lower earlier in the trading session is now back to where it was yesterday morning. In part this follows from some disappointing US data, courtesy of August Existing Home Sales which fell 1.8% against an expected 1.0% rise. Global equities are also softer with US Indices off between 0.6% and 1.1% and which follows a general down day for European Bourses, led by a 1.0% drop in the FTSE which gave back all of the gains from last Friday’s Scottish Referendum led rally.
Mr Dragi’s address to the EU Parliament proved not to be a big Euro mover. He said ‘We stand ready to use additional unconventional instruments within our mandate and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too-prolonged period of low inflation’.
This morning on the economic front we have German and EuroZone Manufacturing & Services PMI at 9.00 am. This is followed at 9.30 am by UK Public Sector Net Borrowing. At 2 pm we have US FHFA House Price Index and this is followed at 2.45 pm by US Manufacturing PMI. Finally at 3 pm we have the Richmond Fed Manufacturing Index.
December S&P 500
The small-cap carnage continues as these Indices were again the downside leaders in yesterday’s sell-off. One real concern for me at this time is the divergence between small caps and blue chip stocks. The other significant development over the last few months is the fact that the Russell 2000 is very close to seeing a ‘Death Cross’ which is where its 50 Day Moving Average drops below its 200 Day Moving Average. If this happens it usually results in a strong subsequent decline.
Yesterday the S&P opened lower and then tried to rally but unfortunately the market just missed my 2000 sell level by 1 handle and in the process left an ‘Open Gap’ from Friday between 1999/2003. Today I will be a seller on any rally back to 1988/1993 with a 1997 stop. Given all of my above concerns I do not want to be long at this time as I believed that we have seen at the very least a short term top in the market at last Friday’s highs.
Euro/USD
Unfortunately I was stopped out of my long 1.2855 position for a small loss yesterday at 1.2825. The Daily Sentiment Index printed a reading of just 3% bulls for the Euro which is a lopsided percentage that indicates strongly that prices are rapidly approaching an exhaustion point in the sell-off from last May. For this reason I have gone long the Euro again this morning at 1.2850 with a 1.2810 stop which is just below yesterday’s low.
US Dollar Index
No change as I am still short the Index from last week at 84.80 with the same 85.20 stop. It was interesting that when the Euro was making a new low against the US Dollar yesterday that the Index did not make a new high which is a possible positive divergence.
December DAX
The Dax is being hit hard to the downside this morning following the weaker PMI which has just been released and came in at 50.3 versus 51.2 expected. I have been flat the Dax over the last week as it has been particularly difficult to get an edge in this market, given the fact that QE has officially started in Europe. The real support for the Dax does not come in until 9465/9500 which a long way from the current price level. Today my only interest in buying the market is on a dip to 9540/9590 with a 9525 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 9480 with a 9435 stop.
December FTSE
My concerns about been long the FTSE yesteday certainly proved to be the case as I mentioned a break and close below 6765 could lead to a 200 point decline. Well we have almost seen 100 points of this decline so far as the market is not reacting well to the Scottish Referendum result. Today I will be a seller on any rally back to 6705/6730 with a 6750 stop.
Dow Rolling Contract
No change as I am still short from last Friday at 17330. Today I will lower my stop to 17250 on this position. The Dow is currently trading back below the July high at 17150 and if the market can close below here this evening it will only add my bearish concerns.
December BUND
The Bund is rallying this morning on the back of the weaker equity markets with the market trading up to my 149.15 sell level. I am still short and I will leave my stop the same at 149.45. If I am stopped out of this position I will be a more aggressive seller in front of 149.80 with a 150.15 stop.
Gold Rolling Contract
No change as I am still long Gold from early yesterday at 1214 with the same 1207 stop. It is trying to rally this morning on the back of the weaker equity markets and if I am stopped out of this position I will be a more aggressive buyer from 1185/1200 with a 1175 stop.
Silver Rolling Contract
The Daily Sentiment Index for Silver has declined to just 4% bulls which last happened on June 27, 2013 which was one day before it put in a bottom at 18.13 which led to a subsequent 30% rally. Having been stopped out of my long 18.60 position last Friday at 18.25 I have decided on the back of the above information to go long again this morning at 17.65. I will leave a 16.95 stop on this position which is just below yesterday’s low at 17.33.
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