Despite the strong economic data a risk-off tone has developed in the US economy over the past two couple of trading sessions. That risk-off tone continued yesterday with falls in global equity markets and declines in Global Bond Yields. US Treasury Yields fell 5.7 bps to 2.33%. The moves again mostly occurred in the real yield component which fell 3.8 bps to 0.36%, while the breakeven inflation rate fell 1.8 bps to 1.97%. Despite the decline, it is not clear what exactly drove the move and overall markets are focused on the President Xi-Trump meeting on Thursday and on US Payrolls next Friday. Traders have been closing short Treasury positions over the past few weeks amidst Congressional gridlock (typified by the failure to pass healthcare reform) and a lack of policy detail on fiscal plans. Comments by the Fed’s Dudley on Friday were also interpreted as hinting at a lower terminal Fed funds rate then currently implied by the Fed’s median dotpoint of 3%.
To mark my 1300th 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 firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 76 points yesterday on the first trading session of April, having made 1335 points 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 Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
Dudley stated on Friday “we have maybe 100 to 150 bps of tightening ahead” which some took as implying a terminal rate of 2.50%. However, it is not clear whether Dudley was referring to the terminal rate or to the next couple of years. The Fed’s Harker was out yesterday evening stating the Fed should stick to its plan of hiking twice more this year and that “I don’t want to get behind the curve, but I don’t think we need to rush, either”. The market currently prices 1.5 rate hikes for the rest of the year.
Against that background, US economic data remains strong. The US Manufacturing ISM remained at high levels and was bang in line with expectations at 57.2. Under the hood the details were very strong. The Employment Index jumped to a six-year high of 58.9 from 54.2 and suggestive of Payrolls continuing to print strongly in the months ahead. Crucial for the Fed, indicators of inflationary pressures were also higher with the Prices Paid Index reaching its highest level since June 2011 at 70.5.
In the FX space the US Dollar was broadly flat. The Yen was the clear outperformer up 0.4% on the risk-off tone while the Euro was also 0.1% higher. The UK Pound was the clear underperformer, down 0.5% following the weaker than expected UK Manufacturing PMI (it fell to 53.3 against expectations of a rise to 55.0). The Australian dollar also underperformed down 0.3% to 0.7603 following the weak Retail Sales figures yesterday (- 0.1% m/m against expectations of a 0.3% increase).
For equities, car manufacturer deliveries garnered the most attention where deliveries disappointed. Automobile stocks led losses on the S&P500 with car manufacturers down 2.6% on the day while the S&P500 index fell 0.2%. The Euro Stoxx closed down 0.8%.
Finally S&P downgraded South Africa’s credit rating to BB+ from BBB- which puts it into the Junk category. S&P cited “internal government and party divisions” which follows the recent sacking of the Finance Minister.
This morning on the economic front we have UK Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone Retail Sales. Finally we have US Trade Balance and Factory Orders at 1.30 pm and 3.00 pm respectively.
June S&P 500
I cannot emphasise enough the importance of my Platinum Service with my updated emails. These emails are vital for traders especially as circumstances change in markets which need immediate attention. Yesterday after the S&P hit my 2353 buy level, I emailed my Platinum Members to exit this position at 2356.50 before the market hit a rebound high at 2358. Subsequently the market got slammed trading to a low at 2340 before rallying strongly into the close. These updated emails take as much risk out of a position as possible. I am still flat the S&P and if any member who did get stopped out of any long position, unless they used my ”5 Handle Rule” they would have lost points yesterday. My ”5 Handle Rule” would have put anyone who used this fantastic trading tool long at 2345 before the market subsequently rallied 10 Handles to 2355. The S&P has very strong resistance from 2363/2365 and is absolutely key to direction going forward. If we are starting the process of a deeper correction and short term bear trend, we should top here on any retest. Today I will lower my sell level to 2363/2368 with a 2373 stop. Yesterday’s low at 2340 should offer support and today I will be a small buyer from 2339/2344 with a 2334 stop. The S&P has very strong support at last week’s 2317.75 low print and if the market does aggressively sell-off from here I will be a strong buyer from 2314/2320 with a 2309 stop.
Unfortunately the Euro missed my 1.0640 buy level with a 1.0642 low print and I am still flat. As I mentioned yesterday the Euro has very strong support from 1.0610/1.0640 and if we are still in a three month bull trend then the Euro should bottom in this price range. Today I will lower my buy level slightly to from 1.0600/1.0630 with a 1.0575 tight stop. I still do not want to be short the Euro at this time especially given the significance of this support level which is just below current prices.
June Dollar Index
No change as I am still a seller on any rally higher to 100.85/101.20 with a 101.50 stop. I still do not want to be long the Dollar at this time despite the impressive rally off last week’s 98.78 low print.
The DAX had a large Downside Key Day Reversal yesterday with the market making new highs above 12400 shortly after the open yesterday morning before falling over 180 points to make a new low below 12240. Unfortunately the DAX missed my 12420 sell level and I am still flat. The fact that the DAX closed below its six year trend line at 12360/12390 is a worry but given how severely overbought the DAX is trading it was due a correction. Today I will now lower my sell level to 12350/12400 with a 12435 stop which is just above yesterday’s high print. Long positions are risky at this time with the support for the DAX not coming in until 12095/12145 where I will be a buyer with a 12045 tight stop.
With so many of my positions getting hit at the same time yesterday plus the fact that after a difficult start to March which I was determined not to replicate in April, that after the FTSE hit my average buy level at 7215 with a 7188 low print I covered this position for a breakeven and I am still flat. For those members who did stay long the market rebounded to a high print at 7252 overnight. The FTSE has very strong support at 7180 which is an important Head and Shoulders Neckline. A break and close below 7180 completes this pattern for a sell signal with a measured target of 7040. Today given the importance of this pivot point I will be a buyer from 7170/7200 with a 7145 tight stop. I will also lower my sell level slightly to 7295/7325 with a 7345 stop.
Dow Rolling Contract
In my determination to get April off to a positive start, after the Dow hit my 20570 buy level I emailed my Platinum Members to exit this position at 20585 and I am now flat. For those members who did stay long the Dow subsequently bottomed at 20517 before rallying strongly to a rebound high at 20665. Given the strength of this rebound I will again look to buy the Dow on any dip lower to 20490/20540 with a 20445 stop. Internally the stock market is still strong as shown by the McClellan Oscillator which only fell from Friday’s +107 close to last night’s +69 closing print. For these reasons I will only lower my sell level slightly to 20710/20770 with a 20820 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally to 20855/20920 with a 20970 stop.
After the Bund hit my 161.80 sell level I emailed my Platinum Members to exit this position at 161.69 as I did not like the price action at the time and I am still flat. Despite the severely overbought condition of the Bund the market subsequently rallied to a high this morning at 162.38. The spike higher after the market broke to previous 161.60/161.80 resistance level should now act as good support for the Bund. Today I will be a buyer on any dip lower to 161.55/161.90 with a 161.35 tight stop. Gains are likely to be difficult from here especially given how overbought the market is trading and for this reason I will again look to sell the Bund on any further rally to 162.75/163.05 with a 163.35 stop.
Gold Rolling Contract
Gold is trying to break higher this morning despite the stronger US Dollar. A break and close over 1265 is a strong buy signal targeting 1281 and then the long term resistance at 1300. In my opinion it is only a matter of time before we break higher and today I will now raise my buy level in Gold to 1243/1250 with a 1237 stop which is just below last week’s low.
Silver Rolling Contract
Unfortunately Silver just missed my 18.05 buy level with a 18.06 low print. Given the fact that Silver is struggling to break lower especially with the fact that the market continues to trade above the key 17.80/18.00 support level I have now bought Silver again this morning at 18.30 with a 17.75 stop.