Yesterday the stock markets crashed with Europe taking up where the US and Asia left off (the Eurostoxx 600 was down 1.56%) and this set the tone for the US market. The drop in the Dow accelerated in the last hour with the Industrials at one stage down 1600 points, the worst intraday plunge ever. Overnight the Dow fell another 900 points to bottom at 23110 which is a mind boggling fall of 3900 points since the high last Monday at 27000. The S&P closed down over 4% and this continued to an overnight low at 2530 for a 350 point decline in the same period. However, the trigger this time was not further yield nervousness, least not as far as the US Treasury market is concerned, yields down initially 3-4 bps for the session pushing further lower, 10s now down a net 7.5bps. A stellar US ISM Non-Manufacturing report was a side issue on the day. The VIX index is up 20 to 38.80, the highest intraday extreme since August 24, 2015 (53.29).
To mark my 1500th 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 in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 134 points yesterady and is now ahead by 389 points for February having made 879 points in January, 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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It has been mixed news on the commodity front and not all playing to the defensive market thematic. Base metals were actually higher in London, copper up 1.76% and the volatile nickel price up 2.31%. Gold is up 0.4% to $1342/0z while oil is lower, WTI by 2.41% to $63.87/bbl and Brent down 1.66% to $67.44. Dalian iron ore and steel rebar futures were both higher in China yesterday, spot iron ore futures by 1.15% and rebar +0.68%.
The DXY remains bid, up another 0.30%, making gains against most of the majors, the AUD, EUR, and NZD being pushed proportionately lower as a consequence. Sterling came in for more selling from a combination of more Brexit chatter and a somewhat lower than expected reading on the Services PMI for January that came in at 53.0 after 54.2 against expectations of 54.1. Not a big miss and still in growth-positive territory, but a modest technical one. UK Chief Brexit negotiator Davis has been speaking of constructive talks with the EU, Barnier saying that is the UK leaves the customs union, there will be trade barriers. Speaking to the European Parliament, ECB President Draghi said that they need to prepare for the risk of no transitional agreement.
While most of the major currencies lost some ground against, one that swam against the tide was the Yen which has held its ground. The safe-haven bid perhaps, though the Swiss Franc has been sold lower.
Most of the further rise in the USD came before the release of the US ISM Non-Manufacturing report for January that was a blockbuster. The market consensus was looking for a modest rise from 55.9 to 56.7, but it jumped to 59.9, the highest since 2005. And the important orders, employment, and prices paid details of the report were if anything even better, all printing north of 60. The Employment index jumped from 56.3 to 61.6, the highest level since this report was first complied back in 1997 while new orders was 62.7 and prices paid at 61.9. This is all testimony to a still strengthening labour market into this year, continuing the strong growth thematic that emerged from the January Payrolls report but with no immediate market impact.
On the inflation theme, Kashkari did a Bloomberg TV interview last night, seemingly softening his post-payrolls comments a shade that we reported on yesterday. On Friday, with the jobs report, we saw a little hint that wages might finally be rising, he said. Still, it ‘’not yet’’ enough, he added. ‘’It could be a blip, but let’s not ignore it’’. There is more Fed speak over the next few days, including dovish Bullard this afternoon.
In his remarks to the European Parliament yesterday Mario Draghi seems to be laying the groundwork to offer an end of QE timing view when they do their major forecast review next month. He recognised better than expected growth at an above potential rate and more confidence inflation will converge on their goal. But he said they can’t yet ‘’declare victory’’ and was not prepared to provide an end date for the ECB’s QE programme. Not yet anyway.
This morning on the Economic Front we already had the release of German Factory Orders which came in very strong at 3.8% versus 0.7% expected. At 8.30 am we have German Construction PMI and this is followed at 9.10 am by German and Euro-Zone Retail PMI. This is followed at 1.30 pm by US Trade Balance
Finally at 1.50pm the Fed’s Bullard will speak on Monetary Policy and the US economy. There is no doubt that the stock market will also get a mention in this speech.
March S&P 500
The past 24 hours was the worst points loss that I have ever seen in the market. That is some statement to make when you consider the 1987 Crash, 9/11 the Global Financial Crisis of 2007/2009 and the Flash Crash in May 2010 when the Dow fell 1000 points in ten minutes before regaining all the points lost very quickly. Yesterday my S&P plan worked well with the market trading lower to my 2737 buy level before rallying to a rebound high at 2760. This rally enabled me to cover this position at my 2743 T/P level and I am now flat. To think that the S&P traded to a 2530 low print overnight is just incredible. This is a 230 point drop with the market having bounced back to 2600 as I write this commentary. Today is going to be impossible to make any predictions for the S&P as once investor panic sets in, it is difficult to pinpoint where it will end as emotion is intense and sharply focused. The big question for today – are we going to get a Tuesday Turnaround? The McClellan Oscillator closed with a negative -358 print which is one of the highest negative readings ever. For once the confirmed Hindenburg Omen signal worked for the bears. The S&P has now wiped out four months of gains in seven trading sessions. The S&P has strong support from 2530/2540 and today I will be a small buyer in this area with a 2520 stop. If I am taken long and subsequently stopped out of this position I will use my ‘’5 Handle Rule’’ to go long again with a stop below whatever new low is made. I would expect a strong rally off these lows today with resistance initially at the 2660/2670 area.
EUR/USD
By comparison to the stock markets the Euro traded in a very narrow range. I am still flat and today I will now lower my buy level to 1.2240/1.2290 with a 1.2195 stop. I still do not want to be short the Euro at this time.
March Dollar Index
I am still flat the Dollar and today I will now raise my buy level to 88.60/88.95 with a 88.30 stop.
March DAX
The DAX is trading 500 points lower from yesterday’s official close at 4.30 pm. I keep emphasizing the importance of my Platinum Service as yesterday I emailed these members to cancel and buy level in the DAX or sell level in the Bund. With the DAX trading hours from 7.00 am to 9.00 pm you should not have a stop in the DAX overnight as the spread betting firms will just take you out. The spread betting firms had a low in the DAX overnight at 11675 was is incorrect as the official Futures Market was closed and this price is false. The September low for the DAX is at 11863 and this level should hold the market today. If 11800 is broken the next support is from 11600/11550. You have to keep an eye of the 2540/2530 range in the S&P because if the market can put in a tradeable bottom in this area we will get a savage rally. Today I will be a small buyer from 11820/11890 with a 11760 stop.
March FTSE
My FTSE plan did not work out as after the market traded lower to my average buy level at 7230 I was quickly stopped out of this position at 7180 and I am now flat. The fact that I had a long FTSE position saved me as I did not buy either the S&P or NASDAQ as the markets were so fast and ETX kept bouncing any position that I wanted to put on and I just gave up. Overnight the FTSE crashed breaking its 500 Day Moving Average at 7000/6990 to hit important longer term Fibonacci at 6870/6860 with the market now trading back above 7000 at 7050. Today I will again look to buy the market on any dip lower to 6980/6900 with a 6845 stop. I have to use wider parameters given the volatility.
Dow Rolling Contract
My Dow plan worked well yesterday with the market trading lower to my 25130 buy level before lunch before rallying to my 25200 T/P level and I am now flat. Incredibly this rally stopped at 25500 before the market subsequently fell overnight to a low at 23110. After I took profit on this trade I emailed my Platinum Members to re-buy the Dow at 25060 with a 25108 T/P level which was filled before the market crashed. The Dow has strong support in the 233380/23650 area and if we can build value above here we could have a meaningful rally. Below here we have strong support from 23000/23200 as building value below for two weeks signals 20700/21600 and possibly lower. Today I will be a small buyer on any dip lower to 23390/23520 with a 23295 stop.
March NASDAQ
The NASDAQ has strong from 6260/6450 which is too wide a band for short term traders so I will stand aside today and observe. If the market builds value below the 6260 level for two weeks it will signal further downside to 5675/5875.
March BUND
I am still flat the Bund which has now regained its 200 Week Moving Average at 158.60. If stocks continue to rally then the Bund will sell-off. Today I will now move my buy level higher to 157.80/158.15 with a 157.50 stop.
Gold Rolling Contract
Gold continues to trade in a sideways direction with little or no movement. I am still flat and will continue to stand on the sidelines looking for a decent risk/reward opportunity. I prefer to keep my margin for trading the other markets at this time.
Silver Rolling Contract
I exited my latest 16.83 long Silver position at 16.89 yesterday and I am still flat. Today I will again look to buy the market on any dip lower to 16.30/16.70 with a 15.95 stop.
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