Carnage is not a word that I use very often but this best describes yesterday’s brutal price action with risk assets hammered while safe haven assets were bid. Just as a I posted yesterday morning the Euro-Zone released its latest Sentix Investor Confidence and it was a shocker coming in with a print of 6 versus 7.6 expected sending European Equity markets into free-fall in one of the most brutal sell-off’s that I can remember. Question marks still remain over China’s ability to control its currency, even though the fall in FX reserves as mentioned yesterday was smaller than expected. Central Banks’ ability to stem the rot has also been questioned, while the Bank of Japan’s move to negative Interest Rates 10 days ago has not had a lasting effect as shown by the 900 point fall or 5.4% in the Nikkei overnight. The Nikkei closed at 16085 which is just above the 16000 major support level and is now 2000 points lower since the BoJ introduced negative Interest Rates.
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For anybody following my Platinum Service it made its first loss of the year by loosing 175 points yesterday but is still ahead by 700 points for February having made 3365 points in January. Since I started this service last June it has made a return of 18000 points.
One of the main concerns for the market was the release of ‘summary of opinions’ from the Bank of Japan’s last policy meeting. The comments revealed that some members within the committee feared negative rates could backfire as financial institutions worried about the risk of further cuts could ‘lead to competition with other Central Banks in other countries’. To this point late last night the Swiss National Bank’s Jordon was quoted saying that the current 0.75% rate could go ‘lower than where we are now’.
Equity markets on both sides of the Atlantic fell between 1.5% (after a late comeback by the US markets in the last hour of trading) and 8% led by sharp drops in banks as well as industrial shares in Europe and materials in the US. Deutsche Bank and Commerzbank shares both tumbled by 9.5% dragging the DAX down 3.3%. The DAX is now officially in bear market territory, down 21% from its late November high. European bank shares are now 24% lower so far for 2016, while the Athens stock market closed 8% lower and is now back to its 1990 price level. In the US , Goldman Sachs and Morgan Stanley were also hit hard closing down over 5% while shares in construction materials dropped below 6%.
In Bond markets, core global bond yields have moved sharply lower. Relative to where I posted 24 hours ago, 10 year US Treasuries are 15 bps lower at 1.71% as the yield curve continues to flatten. In Europe, 10 Year Bunds ended the day 8 bps at 0.21% and have opened lower again this morning at 18bps which is just incredible. Meanwhile Italian and Spanish 10 year year yields closed 12 bps and 10bps higher at 1.675% and 1.744% respectively, while 10 year yields in Greece jumped a whopping 62 bps to 9.95%.
Looking at Currencies, not surprisingly the JPY sits at the top of the leaderboard closing 1.2% higher against the US Dollar, while in Commodities Gold closed 3% higher as Brent and WTI both closed over 3% lower which did not help the equity markets.
This morning on the economic front we have UK Trade Balance at 9.30 am. This is followed at 11.00 am by US NFIB Small Business Optimism. Finally at 3.00 pm we have the US JOLTS Job Openings and Wholesale Inventories ahead of Fed Chair Yellen’s appearance before the Financial Services Committee tomorrow afternoon.
March S&P 500
As mentioned above in my economic commentary just when I posted yesterday morning the equity markets went into free-fall on the back of Euro-Zone Sentix Investor Confidence release. As a result of this both my buy level and stop were penetrated without giving me a chance to buy the market. Subsequently my 5 Handle Rule kicked in at 1849 and while I had a T/P level at 1856 the market fell short with a 1855 high print and I was stopped out of this position at 1843 and I am now flat. Given the huge volatility and the fact that we having such a profitable trading year I did not do anther trade for the rest of the day as at one stage this market looked like it could close 500/700 points lower before we had another hail mary rally in the last hour of trading which halved the losses. Interestingly before we got this late rally the S&P did not break its January low at 1804.25 thus keeping the positive divergence alive. Yesterday’s move lower has left another huge ‘Gap’ from last Friday’s close at 1877 to yesterday’s Chicago high at 1855 and with Fed Chair Yellen speaking tomorrow and Thursday maybe the market will rally and close this ‘Gap’ ahead of these two key speeches. As each day passes the market is telling the Fed that they should never have hiked Interest Rates in December as the equity markets have been in free-fall since. The S&P has three levels of support below at 1830, 1820 and the January low print at 1804.25. If we break this latter low the market will accelerate to the downside as at this stage to October 2014 low will have been violated. In this case I would look for the market to bottom in the 1750/1780 area where I would be an aggressive buyer with a 1735 stop. Otherwise I am going to trade in small size and today I will be a buyer on any further dip lower to 1825/1833 with a 1818 stop which is just below yesterday’s 1821 low print. Again if I am stopped out of any long position I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed.
EUR/USD
My Euro plan worked well with the Euro trading lower to my 1.1090 buy level before trading as high as 1.1238 overnight just falling short of my 1.1240 sell level. Unfortunately as I was having a bad day yesterday I covered my Euro position too early at 1.1120 and I am still flat. This morning the Euro continues to trade at the top of its Bollinger Band and I will again look to sell the market on any further rally to 1.1250/1.1280 with a 1.1320 stop. My only interest in buying the Euro is on a dip lower to 1.1080/1.1110 with a 1.1055 stop.
March Dollar Index
The Dollar just missed my 97.65 sell level with a 97.52 high print and I am still flat. Today I will lower my sell level slightly to 97.30/97.60 with a 97.85 stop. I still do not want to be long the Dollar at this time.
March DAX
Thankfully by the time I posted yesterday morning and you got time to read my commentary the DAX had already traded through my buy level and stop and I am still flat. As mentioned countless times a break and close below 9250 would be bearish and so far the DAX has traded 400 points below this support level. In the process the market has broken its January low print and this 9210/9300 level should now be strong resistance going forward. As a result of yesterday’s break lower the DAX is trading below its Daily Bollinger Band and is trying to rebound this morning as the Williams Index tries to give a buy signal. I will look to buy the DAX on any further dip lower to 8830/8880 with a 8770 stop. I will also be a small seller on any rally higher to 9190/9250 with a 9310 stop.
March FTSE
Just as I posted yesterday morning the FTSE traded lower to my 5735 buy level before unfortunately stopping me out of this position at 5675 and I am now flat. The last support level for the FTSE is at the January low at 5550 which the market needs to hold otherwise this could turn into a bigger bloodbath than it already is. The FTSE is oversold and today I will again look to buy the market on any further dip lower to 5550/5590 with a tight 5525 stop.
Dow Rolling Contract
The Dow continues to trade the best of the US Indices helped by the now much weaker Dollar. Even though I am very bearish of the US economy which in my opinion went into recession late last year it is very difficult to be short the stock market as you just do not know when you are going to get these massive rallies out of thin air. Yesterday the Dow which was trading in the low 15800’s for most of the day turned around and rallied 250 points in the last hour of trading. Given the fact that we have Yellen’s speech tomorrow and the fact that she has to say something positive to arrest this stock slide I will continue to look to buy dips today in the Dow. The price action is telling me to be long the Dow rather than the S&P as the latter is more effected by the huge recent sell-off in the NASDAQ. For these reasons I have bought the Dow again this morning at 15960 with a 15880 stop which is just below the overnight low print.
March BUND
Shortly after I posted yesterday morning the BUND traded higher to my 164.45 sell level. This trade looked good for a while before I was stopped out of this position for a small loss at 164.70. Incredibly the BUND has traded to 165.22 and new contract high this morning. The BUND is now incredibly overbought and trading at the top of both its Bollinger Band and Williams Index and for these reasons I have gone short again at 165.00 with a 165.30 stop which is just above this morning’s high print. If I am stopped out of this position I will be a more aggressive seller in front of 165.50 with a 165.80 stop. In short the yield on the BUND is insane and unsustainable in my opinion.
Gold Rolling Contract
The only good thing about the huge move higher in Gold is that we have not been short and having gotten long as decent levels earlier in January I covered these positions too early and as a result have not been able to get back on board again. Gold is now overbought and due a correction and today I will move my buy level higher to 1160/1170 with a tight 1153 stop.
Silver Rolling Contract
Since Silver just missed my 14.50 buy level with a 14.60 low print following the NFP data release last Friday Silver has traded as high at 15.50 which is frustrating as I have been such a bull of Silver for the past 12 months. Today I will raise my buy level to 14.90/15.15 with a 14.55 stop.
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