Though it is tempting to look at market price action since the start of the week and suggest that ‘Trumphoria’ is waning, I am much more inclined to view the USD/JPY-led decline in the US Dollar, modest dip in Bond Yields and softer stocks as more reflective of short term market positioning than any fundamental reassessment of the what Trumpenomics might look like in practise next year. Mexican Peso aside, the Japanese Yen has been the biggest loser since news of Trump’s victory, and the British Pound is the only major currency to have strengthened against the US Dollar. So seeing JPY at the top and GBP at the bottom of the G10 leader-board suggest these moves two sides of the same (positioning) coin and reflect perhaps the oldest adage in financial markets, that ‘nothing goes in a straight line’.
To mark my 1200th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 46 points yesterday and is now ahead by 1702 points for November having made 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
Oil remains a keen focus with prices back up around $1 a barrel, seemingly on comments from Iraq’s Oil Minister yesterday that he is optimistic a deal will be reached at the OPEC summit in Vienna on tomorrow. This news hasn’t helped energy stocks however which are down around 0.6% and underperforming the broader market. Incidentally, Bloomberg ran a good chart on Monday showing that the market capitalisation of global energy stocks has risen by $490nbn this year, on the back of the rally in crude prices (we were close to $30 at the start of the year). This is perhaps a warning of how much damage might be wreaked if OPEC (and Russia) fails to come to any supply agreement this week.
Low oil prices might be good for consumers, but they are going to be very negative for energy stocks and, I would suggest, the broader market. The S&P energy sector is up 18.8% YTD against 8.0% for the overall S&P. There really is a huge amount to play for this week.
Also coming on to the centre of the market’s radar is Italy, where the stock market was off almost 2% Monday and led by the banks. The FT lead story on Monday notes that if PM Renzi loses Sunday’s referendum, market turbulence is likely to deter investors from recapitalising up to eight of Italy’s troubled banks. It notes that the banks overall have €360bn of problem loans versus €225bn of equity of their books.
ECB President Draghi was in parliament yesterday warning that the greatest risk to the Euro-area came from weak growth and warned that a long period of low rates is a fertile ground for instability. Still no signal on tapering prospects for next year, and unlike the many currencies that have reversed some of the recent post-Trump election moves, the weaker Euro is not one of them.
This morning on the economic front we have UK Mortgage Approvals at 9.30 am, followed by Euro Zone Business Climate Indicator at 10.00 am. Next we have German CPI at 1.30 pm. Finally we have US GDP at 1.30 pm and Consumer Confidence Index at 3.00 pm.
Meanwhile the Fed’s Dudley is speaking in Puerto Rico at 2.15 pm.
December S&P 500
Unfortunately the S&P just missed my 2197 buy level with a 2198.50 low print before bouncing to a 2209 high print before the market sold off into the close. Internally, yesterday was a weak trading session with the McClellan Oscillator falling to +103 from +179 on Friday. As I mentioned last week sentiment towards stocks is high and this was confirmed by the latest weekly American Association of Individual Investors Survey (AAII). Last week, the ”Bullish Percentage” jumped to its highest level in two years to 58%. I am not looking for a major correction, but I certainly think the S&P can loose 2/3% over the coming days before re-grouping and rallying into year-end. My overall target is still the 2300 level that I have mentioned consistently over the past six months. Given the weakness into the close last night, I will now lower my S&P buy level to 2187/2193 with a 2182 stop. I will also lower my sell level to 2213/2219 with a 2224 stop.
EUR/USD
The Euro was close to having a Key Day Reversal yesterday but unfortunately did not close near its 1.0561 low print from early yesterday’s morning’s 1.0686 high. There is no doubt the markets are nervous ahead of the Italian Referendum as mentioned in my economic commentary above. Yesterday after the Euro traded lower I bought the market at 1.0594 with a 1.0630 T/P level which missed overnight and I decided to cover this position at 1.0600 and I am now flat. The key level to watch for the Euro this week is the March 23, 2015 low at 1.0462, as a break and close below here will confirm the US Dollar’s Index’s strength from last week. So far we still have a large negative divergence for the Euro versus the Dollar Index, which makes this level so important. Today I will again look to buy the Euro on any dip lower to 1.0480/1.0520 with a 1.0455 stop. Remember the DSI reading for the Euro is still at 6%, making it very difficult to go short the Euro.
December Dollar Index
My Dollar plan worked well with the market hitting my 101.60 sell level before trading to a 101.17 low print overnight. As I was already long both the Euro and Silver I covered my Dollar short position at 101.45 to reduce my risk and I am still flat. Today I will again look to sell the Dollar on any rally higher to 101.65/102.05 with the same 102.30 stop from yesterday. Today I will move my buy level slightly higher to 100.25/100.65 with a 99.85 stop.
December DAX
My DAX plan also worked well with the market trading lower to my 10550 buy level before bouncing 40 points. As I wanted to bank some points for yesterday’s trading I emailed my Platinum Members to exit this position at 10575 and I am now flat. Despite the soft Euro, the DAX has struggled to rally with the market not helped by the Italian stock market which fell 2% yesterday and is now down by 22% for the year to date. The close last night below 10620 is negative with 10480 the next target. Today I will look to buy the DAX on any dip lower to 10435/10485 with a 10385 wider stop. Despite the negative price action, I still do not want to be short the DAX at this time.
December FTSE
No change as I am still a buyer of the FTSE on any dip lower to 6705/6745 with a 6670 tight stop. The 6700/6720 is key support as a break and close below here is a sell signal. However with month end tomorrow I do not want to be short the FTSE at this time as I expect this support level to hold.
Dow Rolling Contract
I am still flat the Dow which again just missed my sell level. Today I will still be a seller on any rally higher to 19190/19250 with the same 19310 wider stop. Given how overbought the Dow is trading plus the negative price action in the last hour of trading last night on top of the fall in the McClellan Oscillator, I still do not want to be long the Dow at this time.
December BUND
The rally in the US Bond markets over the past few days along with the rally in the Bund shows how important the Daily Sentiment Index reading is as an indicator for future price movements. The Bund has now rallied nearly 300 points off its 159.20 low from early last week. I am still flat the Bund and today I will move my buy level slightly higher to 161.00/161.40 with a 160.65 stop.
Gold Rolling Contract
For anyone who bought Gold at my 1185 buy level (the low was 1182.6), this strategy worked very well with Gold trading to a 1195.50 high print shortly after. Unfortunately I lowered my buy level to 1180 as I was already long both the Euro and Silver and had a enough risk on board. The most important support for Gold is from 1170/1177 and today I will be an aggressive buyer in this area with a 1163 stop. Today Gold has strong resistance at 1210 and today I will be a small seller on any rally higher to 1207/1213 with a tight 1218 stop.
Silver Rolling Contract
Shortly after I posted yesterday morning Silver traded lower to my 16.65 buy level. I am still long and today I will move my stop higher to 16.05. I will look to T/P on this position at 16.95. If I manage to T/P on this position I will use any subsequent dip lower to 16.30/16.70 to re-buy Silver with a 15.90 stop.
Following the success of the NFP Live Trading Day and Education Session in London on September 2, Paul Wallace and I are bringing this event to Dublin for the December NFP day next Friday December 2nd from 10.00 am to 4.30 pm. We only have a couple of places left and If anyone is interested in attending this event the details are on the following link:
https://www.eventbrite.com/e/live-nfp-trading-day-dublin-tickets-28159689389
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