With US and UK markets both closed yesterday it was left to ECB President, Mario Dragi to breathe some life into an otherwise moribund market. In the event there was a modest positive response to his comments even though he made it clear that the risk of a ‘pernicious negative spiral’ of low inflation and weak lending risked derailing the Euro-Zone’s fledgling recovery.
Dragi emphasised concerns that lending conditions were particularly tight for small businesses operating in peripheral economies. This hints at the cornerstone of next week’s policy actions, beyond a widely expected cut in the main refinancing rate and a likely move into negative territory for the deposit rate (currently zero), will be specific measures encouraging lending to the SME sector.
Euro-Zone markets were evidently unfazed by the results of Sunday’s European Parliamentary Elections that puts Nationalist or anti-EU parties in command of over a quarter of the seats in the European Parliament. This outcome was however no worse than feared by mainstream parties heading into the polls. This and the fact that the party of Italy’s Prime Minister Renzi defeated a populist challenge to win the most number of Italian seats in the EU Parliament gave a big boost to Euro-Zone peripheral bond markets . Italy’s 10-Year Bond Yields dropped 17 basis points to 2.97% whilst Spain and Portugal both ended the day 9 basis points lower.
This morning on the economic front we have a EU Leaders Summit. Later at 1.30 pm we have US Durable Goods Orders. At 2 pm we have the FHFA House price and Purchase Index. This is followed at 3 pm by US Consumer Confidence Index and the Richmond Fed Manufacturing Index.
June S&P 500
Last Friday, on what turned out to be the lowest volume trading session of the year so far, the S&P cash finally closed over the key 1900 resistance level. The June Futures contract opened up higher on Sunday night and this theme continued for the few hours that the market was opened yesterday. Finally, just before the close, the S&P traded up to the top of my sell level at 1904. I am still short as the S&P is now trading at the top of both the Bollinger Band and Williams Index and in order to give this trade some room I will raise my stop on this short position to 1910. If I am stopped out I will be a more aggressive seller on any further rally to 1912/1917 with a 1922 stop. Given how overbought the market is trading I do not want to be long this market unless we trade back to 1885/1890 where I will be a small buyer with a 1881 stop.
Euro/USD
After I posted on Friday I was stopped out of my long position for a small loss at 1.3620 and I am now flat. I was surprised that the Euro could not trade lower after Dragi’s speech yesterday. The Euro is still oversold at these levels and today I will be a small buyer on any dip to 1.3590/1.3620 with a 1.3565 stop. I will also be a small seller on any rally to 1.3690/1.3720 with a 1.3740 stop.
US Dollar Index
No change as I am still a small buyer on any dip to 80.00/80.20 with the same 79.70 stop.
June DAX
I was very unfortunate with my Dax plan last Friday as the market just missed my buy level by a few points before trading up 180 points yesterday and I am still flat. Thankfully we have not been short these equity markets which continue to defy logic by trading higher, thus frustrating the bears. The Dax is overbought and at the top of the Bollinger Band and Williams Index and today I will be a small seller from 9895/9935 with a 9955 stop. I still want to put on a more macro short position from 10085/10200 with a 10400 stop. I will also be a small buyer on any dip to 9760/9790 with a 9735 stop.
Dow Rolling Contract
The Dow also just missed my 16500 buy level before closing over the key 16600 level and I am still flat. Today I will raise my buy level slightly to 16490/16530 with a 16460 stop. I do not want to be short the Dow at this time.
June BUND
Shortly after I posted last Friday the Bund traded down to my 145.90 buy level and after a nice rally I was able to cove this position at 146.20 and I am now flat. Today I will again be a small buyer on any dip to 145.60/145.90 with a 145.45 stop. I do not want to be short the Bund at this time.
June FTSE
After I posted on Friday the FTSE traded down to my 6790 buy level and after a nice rally after the open earlier this morning I was able to cover this position at 6830 and I am now flat. As I have mentioned over the last few weeks I like the FTSE versus the Dax spread especially with this spread which is now trading over 3000. Today I will again be a buyer on any dip to 6790/6810 with a 6775 stop which is just below last Friday’s low. I still do not want to be short the FTSE at this time.
Gold Rolling Contract
No change as I am still a small buyer on any dip to 1279/1285 with a tight 1273 stop. Gold needs to break and close over 1310 for the market to turn bullish.
Silver Rolling Contract
After I posted on Friday Silver traded down to my 19.40 buy level. I am still long and I will raise my stop on this position to 1890. If I am stopped out I will be a more aggressive buyer on any dip to 18.30/18.70 with a 17.95 stop.
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