Yesterday was a tale of three PMI’s. Following the stronger than expected HSBC/Markit China PMI which drove the Australian Dollar to the top of the G10 currency leader board we had the Euro-Zone and US equivalents. Euro-Zone PMI’s disappointed with the ‘flash’ Composite Reading falling to 52.8 from 53.5 and the 53.4 expected, with both the Manufacturing and Service sector slipping back. This was not just a story about France, as Germany underwhelmed too. France’s Manufacturing reading slipped further below 50 to 47.8 from 49.6 whilst Germany’s Services Reading fell to 54.8 from 56.0.
The news initially sent the Euro lower but it is back trading at 1.3600 versus the US Dollar this morning. It also left Euro-Zone Equities in a ‘sea of red’ with losses averaging about 0.5%. In contrast, US data outperformed expectations with the Markit version of the Manufacturing PMI jumping to 57.5 from 56.4. We also had significantly stronger than expected US Existing Home Sales at +4.9% with April revised up to +1.5% from +1.3%, led by the single family sector. More evidence of a revival from the winter-weather hit although it is too early to conclude that the Housing Sector is back in good health.
The US data served to reverse last Friday’s small declines in longer dated Treasuries. The 10-Year and 30-Year Bond Yields both rose by 2 basis points and 4 basis points, respectively, but failed to support the US Dollar or Equities as US Indices closed virtually flat whilst the Dollar Index fell 0.1%
This morning on the economic front we have UK data showing the BBA Loans for House Purchases at 9.30 am. This is followed at 10.00 am by the very important German IFO Business Climate/Current Assessment /Expectations. This data will be keenly watched after yesterday’s disappointing German PMI. At 3:00 pm we have US Consumer Confidence, the Richmond Fed Manufacturing Index and New Home Sales. Later this afternoon the Fed’s Plosser will speak on Monetary Policy and Economic Outlook.
September S&P 500
By the time I posted yesterday morning the S&P had already traded down through my 1958 sell level on the back of the weaker Euro-Zone PMI’s. Therefore, in sticking to my plan, I stayed flat on what was another low volume, narrow range trading day. As this week is the last trading day of the month and quarter it is very hard to see a sell-off in the market. It is extremely over bought on just about every technical indicator that I monitor but we will have to wait until we see at least two decent down-days before we can say that we have put in at least a short-term top. Internally this market is very weak, as shown by the McClellan Oscillator which despite the huge run up in the market over the last month is only showing a positive reading of +25
Today I will be a small seller on any rally to 1958/1963 with the same 1972 stop which is just above key resistance at 1970. My only interest in buying the market is still on a dip to 1941/1946 with a tight 1937 stop.
Euro/USD
No change as I am still long at 1.3580 with the same 1.3560 stop. I was amazed that the Euro did not trade lower yesterday especially after the weaker than expected Euro-Zone PMI’S coupled with Dragi’s comments in his interview with the Dutch Newspaper over the weekend when he said that QE was still a possibility. If I am stopped out of this long Euro position I will be a more aggressive buyer in front of 1.3520 with a 1.3485 stop.
US Dollar Index
The Dollar Index is again trading in a very narrow range and I am disappointed that the Dollar has not performed better especially given how weak the Euro-Zone data has been trading recently, coupled with the recent stronger than expected US data. I am still long at 80.25 and I today I will raise my stop on this position to 79.90.
September DAX
By the time I posted yesterday morning the Dax was trading much lower on the weaker than expected PMI. I am still flat and today I will lower my sell level to 9970/10000 with a 10035 stop. I will also be a small buyer on any dip to 9830/9860 with a 9795 stop.
September FTSE
The FTSE just missed my 6795 sell level with a 6793 high before spending the rest of the day trading lower but in a very narrow range. I am still flat and today I will leave my sell level the same at 6795/6815 with a 6835 stop. Remember a break and close over 6820 will be very constructive and opens up the possibility of a test of the key 7100 resistance level over the coming weeks.
Dow Rolling Contract
No change as I am still a small seller on any rally to 17030/17070 with a 17110 stop. As I have mentioned over the last few weeks the Dow is too near the key 17000 resistance level for the market not to at least test this level. Today I will raise my buy level to 16840/16880 with a 16810 stop.
September BUND
The Bund is still trading at the 146.00 level where I marked prices yesterday morning. As I mentioned yesterday I do not want to chase this masrket higher so today I will leave my buy level the same at 145.40/145.60 with the same 145.25 stop. My only interest in selling the Bund will be on a spike to 146.50/146.80 with a 147.05 stop.
Gold Rolling Contract
The Gold plan worked well yesterday as shortly after I posted it traded down to my 1310 buy level and after a nice rally I was able to cover this position at 1318 and I am now flat. I am still looking for it to trade higher to the 1350/1370 over the coming weeks but at this time Gold is overbought and due a small correction first. Today I will lower my buy level to 1295/1306 with a 1293 stop.
Silver Rolling Contract
No change as I am still long Silver at 19.58. Just like Gold, Silver is overbought and today I will raise my stop on this position to 20.50. If I am stopped out I will be a more aggressive buyer in front of 20.20 with a 19.80 stop.
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