Ahead of a long weekend US equities ended the week in a relatively subdued note, oil prices recovered a bit of lost ground since the drop in prices post the OPEC’s production cuts extension announcement and US Treasury Yields were little changed. The USD closed the week a little bit stronger largely reflecting Sterling weakness as a YouGov poll suggest the Labour Party has narrowed the gap with Conservatives ahead of the June 8 UK general election. European equities closed the week marginally softer (both the Eurostoxx 50 and DAX were -0.15%) and US equities faired a little bit better with the S&P500 +0.03% and NASDAQ 0.08% while the Dow was essentially flat. The small rises in the S&P 500 and NASDAQ allowed both indices to close at new record highs, 2415.07 and 6205.25 respectively.
To mark my 1350th 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 68 points on Friday and is now ahead by 978 points for May, having made 1276 points in April, 1335 in March, 1481 in February and 1734 in January. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
After the previous week sell, off triggered by the Trump ‘s administration/FBI turmoil, the S&P 500 has had an impressive run of 7 consecutive days of positive returns, up 2,5% over the period and more than reversing the 1.8% drop seen two Wednesdays ago. Meanwhile the USD has essentially traded sideways over the past few days, still reflecting a bit of softness from US political uncertainty although on Friday it benefited from GBP weakness. On Friday, the pound was already trading with a softer tone during the Asia session, but then a YouGov poll suggested the UK election contest was getting tighter with the Conservative Party’s lead over Labour contracting to just five points, the narrowest since PM May came to power last July. GBP is likely to remain under pressure at the start of the week as additional opinion polls over the weekend appear to confirm the decline of Conservative support and resurgence of the Labour party. A poll for the Sunday Telegraph suggests Labour has narrowed the gap with Conservatives to six points as women voters surge towards Jeremy Corbyn. While a Conservative win still looks like the most probable outcome, recent polls have raised concerns over the possibility of a smaller working majority for the Conservative party or even a hung Parliament. A weak government would make it harder for the UK to negotiate its exits strategy out of Europe.
CFTC data from the week ending May 23 shows speculators trimmed their USD longs v.s. G10 by 44k to 136k. The bulk of the decline in USD longs came from an increase of 27k Euro longs and a reduction of 9k shorts in GBP and 8k shorts in JPY. Speculators now have 64.8k Euro net long contracts, the largest since March 2014. AUD longs fell by -3.7k on the week; marking the 9th week in a row of decline and leaving positioning essentially flat at 2.6k. In US Treasuries, speculators increased their longs in 10y UST by 122k to 362.5k. Shorts in 5y were reduced by 46k to 123.7k and 2y longs of 23.5k flipped to 19k shorts.
The G7 summit in Taormina, Sicily, ended up with the world’s biggest industrialized countries failing to agree a common stance on climate change or trade. U.S President Trump was reportedly the main factor behind the disagreements with the Italian media coining the phrase “G6 plus 1,” reflecting the antagonistic position from the U.S .President.
Later on Saturday via his twitter account President Trump said that he’ll determine next week whether to pull the U.S. out of the Paris climate accord.
With the US and the UK markets closed for Memorial Day/Spring bank holidays, the focus in a quiet session for yesterday was on European markets, specifically interest in ECB President Mario Draghi’s speech to the European Parliament. Two comments have drawn the market’s interest. First, some comments addressed across the Atlantic warning about the US push back on freer global trade. He noted that the neo-protectionist stances that have been stated in the United States are of concern. Second, he virtually repeated his view that while the economic recovery has been “increasingly solid” and broadening, “we remain firmly convinced that an extraordinary amount of monetary policy support, including through forward guidance is still necessary for the present level of under-utilised resources to be reabsorbed and for inflation to return and durably stabilise around levels close to 2 percent within a meaningful medium-term horizon.”
It’s now only a week out from the ECB meeting and you can’t get much clearer than that. The ECB will then unveil its new inflation forecasts; an about turn from the ECB signalling a winding down now of QE would be a big surprise to the market. Even the more hawkish Bundesbank President and ECB Governing Council member Jens Weidmann recognised that internal Euro-Zone price pressures beyond volatile energy are still muted but that it is legitimate question to raise of when to normalise policy.
The Euro is softer this morning as I go to print trading at 1.1125. Elsewhere in Europe, former PM Renzi suggested in an interview with Il Messaggero that instead of an election next year it would make sense to get it out of the way around the time of the German elections in September, rather than subsequent greater scrutiny Italy. This seems to have spooked Italian markets somewhat, the Milan MIB Index down 2.01% in a day of very little change in the DAX and the CAC. Italian bonds also took a hit, 10y yields up 8bps against falls in German and French yields.
This morning on the Economic Front we have the Euro-Zone Business Climate Indicator at 10.00 am. This is followed at 1.00 pm by German CPI and this will be closely watched by the markets. At 1.30 pm we have US Personal Income and the PCE Deflator. Finally we have the Conference Board’s Consumer Confidence and the Dallas Fed Manufacturing Activity Index at 3.00 pm and 3.30 pm respectively.
Meanwhile at 6.00 pm the Fed’s Brainard is due to speak on the Economy and Monetary Policy in New York.
June S&P 500
Unfortunately the S&P just missed my 2406 buy level before rallying to close at new all-time highs. This rally higher was accompanied by another close in the VIX to 9.81 which is the lowest close since 1993. Remember two weeks ago we had consecutive closes below 10 in the VIX before the S&P fell 43 Handles in one day as the VIX spiked 46% in that trading session. I am not saying that the same scenario is going to play out again but I am very worried about the health of the US stock market especially if the Dow cannot break its equivalent March 1 high at 21,169. Since that infamous top in the Dow the S&P has made 5 new all-time highs as the negative divergence between the two main Indices increases. The Residential property market has slowed dramatically over the past six months while for the time being the Commercial Property market continues to hold in. In my opinion with a fair value for the S&P at 1655 this scenario cannot last but as I keep saying we need a sell extreme that lasts for more than a few days and breaks some key levels before we can attempt a more macro short position. Today I will leave my sell level unchanged from 2421/2427 with a 2432 stop. I will also leave my buy level unchanged at 2399/2405 with the same 2394 stop. Initially the S&P should have difficulty in breaking the key 2400/2405 support level as this area was strong resistance for many weeks before finally breaking and closing over it late last week.
EUR/USD
The Euro has stopped trading over the past week with last week the first week in over a month that the Euro has closed lower. I am still flat the market and today I will now lower my buy level slightly to 1.1050/1.1090 with a new 1.1020 stop. I am not comfortable in chasing this Euro lower ahead of next week’s ECB Meeting but I will lower my sell level today to 1.1230/1.1270 with a 1.1305 stop.
June Dollar Index
My Dollar plan worked well with the Dollar trading lower to my 96.95 buy level before rallying to my 97.25 T/P level and I am now flat. The Dollar has key support at 96.60 and strong resistance at the 98.50 breakdown price level from nearly three weeks ago. Today I will again look to buy the Dollar on any dip lower to 96.80/97.20 with a 96.55 stop.
June DAX
The DAX which traded lower to my 12535 buy level ahead of last Friday’s GDP worked well for anyone who held this position as the market subsequently rallied over 100 points. Unfortunately as I wanted to be flat ahead of the GDP data I covered this position for a small gain at 12540 and I am now flat. I make no apologies in covering this position ahead of a key economic release as this service is all about gaining as many points as possible for the least amount of risk. Today I will again look to buy the DAX on any dip lower to 12490/12540 with a 12455 stop. Despite the negative price action I do not want to be short the market ahead of tomorrow’s month-end.
June FTSE
As speculated on Friday, the continued weakness in Sterling is really helping the FTSE despite the severe overbought condition of this market as it trades yet again at new all-time highs. I am still flat and today I will raise my buy level slightly to 7450/7480 with a 7420 stop. Despite the market trading overbought I still do not want to be short the Euro at this time.
Dow Rolling Contract
I am still flat the Dow which has strong support at the 20970 pivot point. I am not comfortable in chasing this market higher and today I will leave my buy level unchanged at 20920/20980 with a 20865 stop. Despite my nervousness for this market I still do not want to go short especially as I have a sell level above in the S&P.
June BUND
The worsening political situation in Italy saw the Bund rise and close over 162.20 in yesterday’s German trading session. As I keep saying Bund Yields are low for a reason and that is the Bond markets are telling you that there is trouble ahead in the world. Of course until we get an ‘’event’ of some kind we do not know what this is. I am still flat the Bund and today I will now raise my buy level to 161.45/161.80 with a 161.15 stop.
Gold Rolling Contract
Gold broke and closed over its key 1265 pivot and resistance level on Friday. However Gold needs to break and close over its 4.5 year mega trend line at 1280 for me to turn bullish. Today I will now raise my buy level slightly to 1246/1253 with a 1240 stop.
Silver Rolling Contract
My Silver plan worked well with the market rallying to my 17.35 T/P level on my latest long 17.15 position. I subsequently emailed my Platinum Members to re-buy Silver at 17.25 and as I wanted to bank some points for yesterday’s trading session I covered this position at 17.38 and I am now flat. Today I will again look to buy Silver on any dip lower to 17.00/17.30 with a 16.70 stop.
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