As for Friday’s markets, does China’s latest monetary policy easing, right on top of the ECB’s public commitment to intensified easing, reduce EM growth and asset market concerns to the point where the Fed will now find it easier to lift rates his year? Or are these actions a case of The ECB and China getting its retaliation in first upon resigning themselves to the limited likelihood of the Fed moving anytime soon? Or, does the sixth PBOC easing in twelve months, with another cocktail of rate cuts plus RRR cuts, underscore the depth of, and concern for, the China slowdown? Do China’s actions increase or reduce the likelihood that its currency policy will soon have to resume supporting monetary policy with fresh depreciation? It would be disingenuous to suggest we got a clear answer to any of these questions on Friday. Nowhere was this more evident than in the AUD FX market. The China news (25 points off the key lending and deposit rates, a 50 point RRR cut and full abolition of the deposit rates ceiling) initially added fuel to the equity markets before we got a late bought of profit taking ahead of tomorrow’s key FOMC Rate decision.
For anybody following my new Platinum Service it made 25 points yesterday and is now ahead by 1192 points for October. The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
Yesterday was a contained day for markets, equities a little heavy for no apparent reason other than perhaps some nerves ahead of Tomorrow’s FOMC announcement. The German IFO Survey for October held up well considering the VW emissions scandal, the IFO Survey printing OK and having the pedigree and coverage across German business and suggesting growth continued through September, if a little slower. German stocks rose a little in a soggy European session.
Not so as far as UK Manufacturing is concerned with the CBI trends survey for October printing much weaker than expected, the headline Orders Index the lowest since June 2013 and the Export Volume Index the lowest since January 2013, another slice of evidence that the strength of the Pound and softening domestic demand are weighing on local industry.
Neither the Euro nor the Pound were initially moved by either of these data points to any material extent, but when the US New Home Sales printed much lower than expected, coming also with downward revisions, that took a little heat out of the US Dollar, Sterling and the Euro a little higher overall without shooting the lights out. The US Housing Sector to date has been one of the continuously shining growth stars, but this report on sales had analysts wondering about that star status. Also released yesterday was another regional Fed Manufacturing Survey, this one from the Dallas Fed also still in contractionary territory, that region weighed down by the weakness in the energy sector. Also, the White House and the Congress seem to be getting closer to a deal to extend the debt ceiling with the November 3 borrowing limit date looming, removing one threat to market stability.
Oil prices were a little weaker still yesterday, making energy stocks amongst the weakest performers on the S&P 500 in what has been a rather listless session overall. In the Oil currency world, the CAD and the RUB both lost some ground against a somewhat softer USD, though the NOK was marginally higher. The Aussie, after a disappointing session Friday saw some support re-emerge yesterday in the wake of the Chinese monetary policy stimulus. It’s consolidated its position overnight, not breaking new ground on the top side and this morning trading at a little under 0.7250.
This morning on the economic front we have UK GDP at 9.30 am. We have no data of note due today from the Euro-Zone. At 1.30 pm we have US Durable Goods Orders which have a history of been volatile. This is followed at 2.45 pm by the US Markit Services PMI. Finally at 3.00 pm we have US Consumer Confidence Index and the Richmond Fed Manufacturing Index.
December S&P 500
The S&P plan worked well on Friday as shortly after China cut its interest rates the S&P spiked higher to 2074.50 which enabled me to go short at 2069 before having a nice sell-off shortly after the US Markets opened which enabled me to cover this position at my 2062 T/P level as outlined earlier to my Platinum Members and I am now flat. The S&P still has a small ‘Open Gap’ from last Thursday’s close at 2050 to Friday/Monday’s low print at 2057 which is surprising given how weak New Home Sales were yesterday which hit a two year low after falling a sizeable 11.5% and yet the S&P refused to sell-off. One of the main reasons for this is the fact that we are now approaching the November to April timeframe which is traditionally the strongest six months periods of the year. However internally this market is very weak as shown by the McClellan Oscillator which closed at positive reading of just 126. This is alarming when you consider we were over +300 two weeks ago before we had the last leg higher of this move. The 2030/2045 area should be very strong support for any sell-off over the next 48 hours but a break and close below 2030 could be see another acceleration lower in the market. Today I will be a buyer on any dip lower to 2046/2051 with a 2042 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2031/2036 with a 2025 stop. I am not comfortable in going short ahead of the FOMC tomorrow especially with the S&P now closing over the 200 Day Moving Average for the past three trading sessions.
EUR/USD
Shortly after the US Markets opened last Friday, the Euro traded lower to my 1.1045 buy level. I am still long and today I will leave my stopped unchanged at 1.0990. If I am stopped out of this position I will use any further sell-off to 1.0925/1.0960 to go long again with a 1.0890 stop.
December Dollar Index
Similar to the Euro above the Dollar traded higher to my 96.90 sell level on Friday. I am still short and I will leave my stop the same at 97.30. So far the high print has been 97.28 and today I will use any sell-off in the Dollar to close this position and go flat.
December DAX
The DAX plan did not work out on Friday as shortly after I posted the PBoC cut Interest Rates which saw another spike higher in the DAX with the market hitting my 10690 sell level before stopping me out of this position for a small loss at 10750 and I am now flat. The DAX is very overbought on a Daily Basis after its near 10% move over the past 10 days, and is trading outside its Daily Bollinger Ban and at the top of its Williams Index. Today I will attempt to go short again on any further mover higher to 10860/10920 with a 10960 stop. I am only trading in small size given the volatility and I do not want to be long the DAX at this time.
December FTSE
The FTSE is refusing to par-take is this mania of a Global Stock market increase as the market rises at a much slower pace. Unfortunately after the PBoC cut Rates on Friday I was stopped out of my 6375 short position at 6420 and I am now flat. Today I will again look to go short on any move higher to 6445/6475 with a 6495 stop. I still do not want to be long the FTSE at this time especially with the weakening price action.
Dow Rolling Contract
The Dow plan worked well on Friday as shortly after the US Markets opened the Dow traded higher to my 17680 sell level before having a nice sell-off which enabled me to cover this position at my 17620 T/P level as outlined earlier to my Platinum Members and I am now flat. As I mentioned on Friday I much prefer to go short the Dow rather than the S&P especially with the strong US Dollar effecting the Earnings of the major Dow stocks. Today I will use any rally to 17710/17760 to go short with a 17810 stop. Naturally I do not want to be long the Dow at this time.
December BUND
No change as I will use any rally over the coming days to 158.70/159.20 to go short with the same 159.50 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1148/1155 with the same 1144 stop. Remember a break and close below 1150 will be short-term bearish.
Silver Rolling Contract
I am still long at 15.88 and today I will use any rally to 16.00 to go flat. I will leave my stop the same at 15.60 on this position.
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