Large falls in Oil prices and Equity markets dominated market action over the last 24 hours. Meanwhile the Euro continues to trade at a 9-year low amid growing speculation that the ECB will finally introduce QE at its 22nd January Meeting. Slowing German inflation and renewed speculation of a Greek exit from the Euro-Zone further added to investor concerns. The Oil price has continued to decline with the WTI price falling a hefty 5.3% yesterday and is now trading at $49.50/bbl, the first time it has been below $50 since April 2009. Brent closed down over 6% and these falls were assisted by comments from Iraq’s Oil Ministry that it intends to expand production this month to 3.3m barrels per day. Meanwhile Russian Oil production has risen to a post-Soviet high of 10.7m barrels a day.
The fall in Oil prices led to a sharp sell-off in equity markets led by a slump in energy shares. US stocks closed down nearly 2% while the German Dax closed 3% lower. The renewed speculation of a Greek exit from the Euro-Zone also affected sentiment, resulting in the Greek Stock market falling 5.6%.
After Dragi’s weekend newspaper comments on the rising threat of deflation, the weak German CPI further heightened expectations that QE is imminent. German inflation slowed to just 0.1% yoy in December, from 0.5% in November, and ensured that the Euro was the weakest currency over the last 24 hours.
This morning on the economic front we have German/UK/Euro-Zone Services PMI at 8.55 am, 9.00 am and 9.30 am respectively. At 2.45 pm we have the US Services PMI. Finally at 3.00 pm we have US Factory Orders and the ISM Non Manufacturing Composite.
March S&P 500
The S&P is now down 3.5% in the last four days which is remarkable as this is seasonally one of the strongest time’s for the the stock market. Yesterday’s 2% drop generated another Hindenburg Omen, coming on top of the nine that we had in December. This is not good and there is no doubt that the very low Bond Yields are telling us that the economic world is in big trouble. When I mentioned the ‘Open Gap’ at 2007/2029 yesterday I did not expect that we would basically fill this ‘Gap’ after I posted. These markets are extremely fickle at the moment and very news sensitive.
Before the market dropped the S&P had a nice rally but unfortunately just fell shy of my 2053 sell level before trading down to a 2010 low. The S&P is now down 80 handles since last Monday’s high and, with the drop yesterday, it traded lower to my 2018 buy level. I am still long and today I will raise my stop slightly to 2009 on this position which is just below yesterday’s low. If I am stopped out of this trade I will use my ‘5 handle rule’ to go long again with a stop below whatever new low is put in (See the Education tab).
Given how much the S&P has fallen over the last four days my only interest in shorting this market is on a rally back to 2035/2043 with a 2047 stop.
Euro/USD
No change as I am still long the Euro from yesterday morning at 1.1935 with the same 1.1895 stop. The Daily Sentiment Index remains at extreme levels at just 4% bulls and in my opinion this market is ripe for a multi-month rally. Last May when the Euro was trading 20 handles higher at 1.3993 the DSI posted a 81% bullish reading for the Euro before it collapsed. The DSI is extremely important indicator and the big question is do we fall further first before having a rally or will we just bottom in this area. If I am stopped out of this 1.1935 long position I will look for any buy extreme to reset my long position.
US Dollar Index
No change as I am still short form yesterday morning at 91.70 with the same 92.10 stop.The Daily Sentiment Index closed at 96% bulls last night which is one of the largest readings since records began.
March DAX
After I posted yesterday morning the Dax tried to rally before getting slammed as the market having hit an 9800 high closed at 9475,pretty much where we are currently trading. The next big support for the Dax is from 9270/9310 and if the market falls to this low I will be an aggressive buyer in this area with a 9220 stop. My only interest in selling the Dax is on a rally back to 9570/9610 with a tight 9640 stop.
March FTSE
By the time I posted yesterday the FTSE started to fall and very quickly stopped me out of my long 6475 position for a small loss at 6440 and I am now flat. Yesterday was another great example of how important it is to have stops in the market. This morning the FTSE is trading below the key 6360 support level and today I will be a small seller from 6350/6380 with a 6410 stop. I do not want to be long the FTSE at this time.
Dow Rolling Contract
I am very frustrated that I covered my short Dow position last week especially with the Dow now 650 points lower from its highs. I am still flat and today I will lower my sell level to 17620/17700 but only in small size. If I am taken short I will leave a 17750 stop. Given how overvalued this Dow is I do not want to be long the market at this time.
March BUND
No change as I am still a reasonable seller in front of 156.90 with the same 157.20 stop as I have just been stopped out of my small 156.35 short position for a small loss at 156.60.
Gold Rolling Contract
The Gold plan worked out very well yesterday as shortly after I posted it traded lower to my 1190 buy level. As I am already long Silver I decided to cover my Gold trade at 1209 this morning and I am now flat. Today I will again be a small buyer on any dip to 1192/1199 with a 1183 stop.
Silver Rolling Contract
No change as I am still long at 15.80 from last month with Silver finally trading back above 16.20. A break and close over 16.70 will be very constructive. I will still leave my stop the same at 15.45.
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