Stock markets, having opened strongly in the US, quickly sold off as stresses in the emerging markets continued to become more pronounced. The VIX Index has spiked to another recent high over 18 and is now up over 50% from its December 31st low. Nervousness was again evident near the US close as the S&P closed down 0.5% whilst the NASDAQ, after its Key Week Reversal last week, again led the charge yesterday as it lost another 1%.
US Treasury Yields are also back up off the lows of 2.70% seen early yesterday morning and they are currently trading at 2.76% which is still well below the early January highs of 3.04%. What is significant here is that unlike the May through August 2013 sell off in Emerging Markets, higher yields are not the likely cause as back then the 10 year yield surged to 3% from a low of 1.65%. Current Emerging Market stresses are therefore much more about the fear of Fed liquidity withdrawal than they were last year and this what makes tomorrow’s FOMC announcement so important. News that investors in the China Trust, marketed by ICBC, will get full repayment of capital a big source of angst last week) may be helpful to the cause of calmer markets today. After the close last night Apple reported its latest earnings which trailed analysts estimates with profits of $13.1billion little changed from a year earlier. They sold 51 million iPhones, falling short of the 54.7 million expected.
This morning on the economic front we have UK GDP at 9.30 am. We have no data of note from the EuroZone whilst at 1.30 pm we have the latest Durable Goods Orders from the US. This is followed by Consumer Confidence and the Richmond Fed Manufacturing Index. The FOMC starts its two day meeting this afternoon.
March S&P 500
The S&P had another wild day yesterday and if the VIX continues to trade near 18 this trend will continue. Shortly after I posted yesterday morning the market traded down to my 1784 buy level before having a nice rally and I was able to cover this position at 1791 and I am now flat. The S&P subsequently traded down to a low of 1767 before having another rally back to 1788 before again getting slammed in the last 30 minutes of trading to close near the lows of the day. The S&P has two major supports going forward namely the 1760 reaction low from December 18th when tapering was announced and yesterday’s low at 1767. The markets are opening better this morning but as I mentioned above if the VIX stays high then this two way volatility will continue. Today I will trade in smaller size with a bigger stop due to the higher volatility. I am a small buyer from 1775/1780 with a 1766 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1758/1762 with a 1755 stop. Given that today is the start of the FOMC Meeting my only interest in shorting the market is on a rally to 1801/1806 with a 1811 stop.
Euro/USD
The Euro also worked well yesterday as shortly after I posted the Euro traded down to my 1.3660 buy level. After a small rally overnight I have now covered this position at 1.3685 and I am now flat. Today I will be a small buyer on any dip to 1.3620/1.3645 with the same 1.3610 stop. Given the price action over the last week I still do not want to be short the Euro at this time.
US Dollar Index
No change as I am still long from last week at 80.50 as the Dollar is still trying to stabilize. I do not want to raise my stop as yet and I will leave it the same at 79.80.
March DAX
After the huge 300 point sell off in the Dax last Friday, yesterday had a tighter trading range although the market was still very volatile. The Dax is trying to find support between 9250/9280 and today I will be a small buyer in this range with a 9225 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 9150/9190 with a 9125 stop. My only interest in selling the Dax is on a rally to 9440/9480 with a 9505 stop.
March FTSE
The FTSE traded heavy all day, led by Vodaphone shares which closed down 7% on large volume. Shortly after I posted the FTSE traded down to my 6530 buy level before quickly stopping me out of this position at 6490 and I am now flat. This market is extremely oversold and still trading at the bottom of the Bollinger Band. The next critical support is from 6410/6450 and I will be a buyer in this range with a 6395 stop. A break and close below 6400 will be very bearish and would open up the possibility of a test of 6000 over the coming weeks.
Dow Rolling Contract
Shortly after I posted yesterday morning the Dow sold off before having a nice rally before lunch enabling me to cover my 15845 long position at 15920 and I am now flat. The Dow has now closed down for 5 days in a row. It is interesting that in the stock market crash of 1929 the Dow never closed down more than 4 consecutive days before having a rally and in 1987 the Dow never closed down more than 5 straight days so the market is due at least a one day relief rally. Today I will be a small buyer from 15820/15850 with a 15780 stop. Given how oversold the market is trading I do not want to be short at this time.
March BUND
No change as I am still a small seller on any rally to 142.80/143.10 with a 143.25 stop.
Gold Rolling Contract
Gold worked very well yesterday as shortly after I posted it traded up to my 1270 sell level. As I mentioned yesterday Gold is finding it very difficult to break the 100 Day Moving Average at 1275. We were also trading at the top of the Bollinger Band and after a nice sell off in the afternoon I was able to cover my short position at 1255 and I am now flat. Today I am still a small buyer on any dip to 1235/1242 with a 1229 stop. I will also still be a seller on any rally to 1270/1280 with a 1285 stop.
Silver Rolling Contract
No change as I am still long in small at 19.80 with the same 19.50 stop.
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