There have certainly been some unsettling events over the past 24-48 hours for markets to ponder. First was the unsettling scenes of the forced intervention in the Catalonian independence vote and in the past 24 hours another mass shooting in the US, this one in Las Vegas, unfortunately with many lives lost. The Catalan vote has certainly weighed on Spanish and Euro-periphery markets over the past 24 hours and dented the Euro. One does not like to pontificate on whether the shooting has affected US markets, though it would not have been surprising if US yields had pushed on more after what has been a very strong reading from the ISM Manufacturing survey. Events in Spain are continuing to unfold in real time. Reports suggest that the provincial government seems to be pushing on to actually declare independence. Markets are alert to all sorts of speculation on what the next steps might be from the national government and indeed whether there are any questions about its own longevity in this more fast-moving dynamic political environment.
To mark my 1425th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 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 72 points yesterday on the first trading day of October, having made 447 points in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
Spanish Bond and equity markets underperformed yesterday, the Spanish 10-year yield up 9.1 bps (Portuguese yields rose 4.0 and Italy’s by 4.5) against German yields that were actually a net 1.3 bps lower. German Bond Yields eased, notwithstanding their release of the “final” September Manufacturing PMI that was confirmed at 60.6, the equivalent for the Euro-Zone also unrevised, at an also strong 58.1. (Spain’s was 54.3, up from 52.4 in August.) The Madrid stock market closed 1.21% lower while the Eurostoxx 600 rose 0.51%.
The Euro has also been underperforming since the start of trading yesterday and that has again continued overnight. It’s down 0.6% against a US Dollar that has had some support from tax cut package tailwinds and a turbocharged reading on the ISM Manufacturing report for September. The ISM came in at a higher-than-expected 60.8 up from 58.8, the fastest pace of US Manufacturing growth for 13 years. Not only was the headline number strong, but the details were even better with new orders of 64.6 (after 60.3), production at 62.2 (61.0) and prices paid at 71.5 (62.0).
The strong US reading on manufacturing momentum follows adds to the picture of a synchronised manufacturing/IP upturn with Chinese manufacturing the strongest for 5 years and even yesterday’s BoJ Tankan survey the best for a decade. It would not surprise at all if the IMF upgraded their global forecasts in their forthcoming World Economic Outlook next week. It is also a point that won’t be lost on the RBA Board in today’s discussions on the global and domestic economy today.
In the wake of the US manufacturing reading and US Construction spending rising 0.5% in August, the Atlanta Fed raised its estimate of GDPNow for Q3 from 2.3%, back up to 2.7%. Note that the Atlanta Fed is working on the development of monthly US GDP estimate.
Along with the Euro, the other currency that has been under-performing has been Sterling. It is down nearly 1% to 1.3275 this morning and trading close to its recent lows into the Conservative Party conference in the first half of this week with PM May speaking Wednesday. There have been calls for PM May to sack foreign secretary Boris Johnson, who has been outspoken about her Brexit strategy and undermined her authority. GBP has continued to fall before and since the UK’s Manufacturing PMI reading that was 55.9, down from 56.9, still strong if marginally shy of expectations.
This morning in the Economic Front we have UK Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone PPI. We have no US data of note today.
December S&P 500
There is no stopping this bull market despite the S&P underperforming the Dow the market still made its 40th new all time high for 2017. Yes the market is overextended in almost every measure one wishes to use. And yes, the Price/Book value relationships are egregious, as are P/E ratios. Finally, the use of margin is extended by any measure one wishes to use and by any comparison to past history that one might conjure up. The VIX again closed below 10 yesterday. It turned out that September was the lowest volatile month for the S&P in 66 years since 1951 with the change between the S&P Index’s closing high and closing low at just 2.1%. The big question is how long can the VIX stay low and stocks keep going up before a major pull back. Yesterday after the S&P traded higher to my 2525 sell level the market traded sideways to lower for a couple of hours before eventually rallying small into the close. I covered my short position at my revised 2522.50 T/P level and I am now flat. Today I will again look to sell the S&P on any further rally to 2532/2538 with a 2543 stop. I will also raise my buy level slightly to 2508/2514 with a 2503 stop.
EUR/USD
Overnight the Euro traded lower to my 1.1715 buy level with a 1.1695 low print. There is no doubt the political landscape is changing in Euro following last week’s German Elections and Sunday’s Referendum in Barcelona. As a result I emailed my Platinum Members to exit and long position at my revised 1.1732 T/P level and I am now flat. In contrast to my recent views this market is now a sell on rallies especially if we can break and close below 1.1660. Today I will be a seller on any rally higher to 1.1810/1.1850 with a 1.1890 stop. Given the importance of the 1.1660 support level I will be a small buyer on any dip lower to 1.1625/1.1665 with a 1.1595 stop.
December Dollar index
No change as I am still a buyer on any dip lower to 92.80/93.15 with a 92.50 stop.
December DAX
Thankfully the DAX traded heavy for most of the morning after I posted yesterday. As a result I emailed my Platinum Members to exit any short position which I did at 12853 on my average 12850 position and I am now flat. The DAX is severely overbought and this condition is emphasised by the fact that the DAX is struggling to rally despite the weakness of the Euro. Today I will again look to sell the market on any rally higher to 12970/13020 with a 13060 stop.
December FTSE
The renewed weakness in Sterling led to a large rally in the FTSE which is testing its 100 Day Moving Average at 7380 as I post this commentary. I have no interest in going short the FTSE as this market has so underperformed both the US Indices and DAX over the past three months. Today I will now raise my buy level to 7295/7330 with a 7260 stop.
Dow Rolling Contract
My Dow plan worked well with the market initially trading higher to my 22480 sell level before selling off to the 22440 area. The Dow stayed close to this area for a good hour and I used this sideways action to cover my short position at my revised 22447 T/P level. Subsequently the Dow exploded into the close. On Monday the CNN Fear & Greed Index closed at an extreme overbought condition at 85. This is the third highest level to which this Index has risen since late 2014, and it was only ‘’bested’’ in the early Autumn of last year and again in December of last year… two periods of time just before very serious downward corrections in stock prices took place. Today I will again look too sell the Dow on any further rally to 22670/22730 with a 22780 stop.
December BUND
My BUND plan worked well with the market trading higher to my 161.30 initial sell level with a 161.36 high print before selling off to 161.00 this morning. If you are still short I would take my gain here and look to sell the Bund again on any subsequent rally to 161.45/161.80 with a 162.10 stop. I did not sell the Bund myself yesterday and I am still flat.
Gold Rolling Contract
Gold has now declined over 6% since September 8 as forecasted by the extreme optimism towards Gold as shown by the Managed Money Accounts. I am still flat and I will continue to be a buyer on any dip lower to 1256/1263 with a 1249 stop.
Silver Rolling Contract
No change as I am still long at an average rate of 16.80 with the same 16.35 stop.
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