Yesterday was a day for risk assets again with the S&P closing out its fifth day of gains, up another 1.85% with EM and European equities also performing well, the Eurostoxx 600 index up a cool 3.01%, with a sea of green gains across this writer’s screen. The likes of copper (+1.51%) and Oil (Brent $49.41, +$1.28/bbl) fared better while in the currency sphere, the AUD was up another 0.57%, testing above 0.71 and trading just below the figure as we head into European trade this morning. Overnight the at the RBA Board meeting the Central Bank decided to leave Interest Rates unchanged as expected.
For anybody following my new Platinum Service it lost 175 points yesterday and is now down 35 points for October. The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
The VIX volatility index is back below 20 and has not closed at these levels since before market volatility escalated in the latter part of August. This is a significant development as a lot of Hedge Funds are not allowed to trade the stock market when the VIX is trading over 20.
Meanwhile, while the US market might be taking some comfort from the fact that Fed lift-off looks to have been delayed again, the economic data prints yesterday – mostly the Service/Composite PMIs – revealed further easing in growth on both sides of the Atlantic, the more so in the UK and the US than for the single currency zone, though US services growth still faring relatively well.
Just as Fed rate lift-off has been delayed, at least beyond the October 27-28 FOMC meeting, a two point drop in the UK services PMI points to 53.3 points to the UK’s growth rate easing back and the market thinking that BoE rate rise talk is a bridge too far. In a trading session of risk-on, Sterling, the JPY, the CHF, and the EUR all lost some ground, the AUD faring better on the crosses as a result.
The US ISM non-manufacturing ISM eased back a little more than expected, but at 56.9, still OK. The survey headlines were more cautionary, reporting a recent retail slowdown due to stocks volatility, some confidence concerns, and mining dragging down services though with the US Dollar less of a concern for services.
The Nikkei closed up another 1% with the Market closing back above 18,000 at 18,186 while China is still closed for the last of their recent Holidays.
This morning on the economic front we already had the release of German Factory Orders which printed much worse than expected at -2.2% versus -1.4% leading to a lower opening for the DAX after yesterday’s large rise. The only other data of not to be released today is US Trade Balance at 1.30pm. However ECB President Dragi is speaking in Frankfurt at 6.00 pm and it will very interesting what he has to say about the EUR. Finally after the US Markets close this evening San Francisco President Williams will speak on economic outlook at 10.30 pm.
December S&P 500
The S&P has now rallied over 100 Handles following its sell-off after the horrific NFP data last Friday as the markets are back to the scenario that bad news is good news with the odds lessoning each day on any type of Fed Rate Hike. One interesting fact about last Friday’s NFP data was the Participation Rate which is back at a 38 year low to 1977 which is just incredible. There is no doubt the US is slowing down and I have to ask the question what is this going to do for US Earnings going forward. As expected the S&P finally closed its large 1946/1964 ‘open Gap’ from over two weeks ago yesterday but in the process left another large ‘Gap’ from last Friday’s close at 1941 to yesterday afternoon’s low at 1960. I just cannot see this ‘Gap’ left unfilled without at least a partial retracement. The main resistance level for the S&P is from 2025/2035 which held seven times in 2015 before finally breaking on August 20th. My S&P plan did not work out yesterday as shortly after the market traded higher to my 1964 sell level I was very quickly stopped out of this position at 1971 and I am now flat. However despite my concerns for the S&P going forward I have to respect the extent of the move higher since last Friday afternoon and for this reason I will look to buy the market on any dip lower to 1954/1960 with a 1949 stop. If I am taken long and subsequently stopped out of this traded I will be a more aggressive buyer on any further dip to 1941/1946 with a 1937 stop. My only interest in selling the S&P today is on a rally higher to 1993/1998 with a 2002 stop.
EUR/USD
The Euro traded lower to my 1.1180 buy level shortly after the US Equity markets started to rally. However with Dragi due to speak this evening at 6.00 pm I have decided to cover my long Euro position here at 1.1215 as there has to be a fair chance he will try and talk the Euro lower, as no Central Bank wants a strong currency at this time and certainly not the ECB. Following Dragi’s speech I will look to buy the Euro on any dip lower to 1.1080/1.1130 with a 1.1055 stop. I still do not want to be short the Euro at this time as in my opinion given the weakness of the US Economy it is only a matter of time before the Dollar trades lower.
December Dollar Index
I am still flat the Dollar and with Dragis speech due this evening I am going to raise my sell level slightly to 96.50/96.80 with a 97.10 stop.
December DAX
Thankfully I had a tight stop on my short 9725 DAX position yesterday morning at 9750 which was triggered shortly after I posted and I am still flat. This morning’s Manufacturing data out of Germany was horrible with a Monthly decline of 2.2% versus -1.4% expected. Globally the Manufacturing Sector is now in or close to recession. Today I will be a small buyer of the DAX on any further dip lower to 9650/9700 with a 9610 stop. I will also be a small seller on any further rally higher to 9880/9930 with a 9970 stop.
December FTSE
My FTSE plan did not work well yesterday as shortly after lunch the FTSE traded higher to my 6245 sell level before stopping me out of this position for a small loss at 6275 and I am now flat. The FTSE has rallied strongly on the back of the weaker UK Economic data leading to the hope that the BoE will not hike Interest Rates this year. Given the huge move higher in the FTSE SINCE LAST Friday afternoon I have to respect this price action and for this reason today I will be a small buyer on any dip lower to 6195/6230 with a 6180 stop. I do not want to be short the market at this time.
Dow Rolling Contract
The Dow plan certainly did not work out well yesterday as I was stopped out twice after what has been an incredible 800 point rally since 3.00 pm last Friday. Shortly after I posted I was stopped out of my Sunday night 16490 short position at 16530. Subsequently the Dow rallied higher to my second sell level at 16650 before very quickly stopping me out of this position at 16720 and I am now flat. Today I will be a small buyer on any dip lower to 16550/16610 with a 16490 stop. My only interest in selling the Dow is on a further rally higher over the coming days to 16980/17040 with a 17080 stop.
December BUND
Having been stopped out of my 157.25 short position on Friday near the highs of the day at 157.55 it is very frustrating to see the market trading 100 points lower this morning. I am still flat the BUND and today I will lower my sell level slightly to 157.10/157.40 with a 157.70 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1118/1128 with the same 1111 stop.
Silver Rolling Contract
I am still flat Silver and today I will move my buy level higher to 15.10/15.40 with a 14.80 stop.
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