After just over 24 hours since Macron’s French presidential election win, the Euro and European equities are feeling a small hangover following a solid run in the previous two weeks. Early on Monday the Euro traded to a high of 1.1023, but since then it has been on steady decline and now it trades at 1.0921, 0.68% lower. Investors have also sold European equities with the CAC 40 (-0.91%) leading the way (Stoxx Europe -0.41%). Buying the rumour and selling the fact appears to have been a greater force than the elimination of a tail risk. Macron’s challenge to form a government and the National Assembly elections in June could also be a factor weighing on sentiment. All that said, however, after Austria and the Netherlands, Macron’s win means that the EU and the Euro have yet again avoided a potential challenge to their existence.
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For anyone following my Platinum Service it made 11 points yesterday and is now ahead by 382 points for May, having made 1276 points in April, 1335 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 New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
Hence I think that at least near term the obstacle of EU political risk has been removed and should allow the ECB to shift its language away from ultra-dovish tone. On this score, yesterday ECB executive board member Mersch commented that risks to growth are almost back in balance and that the ECB could review the interaction of its policy tools. Note that ECB Draghi speaks tomorrow at 12.00 pm to the Dutch Parliament and another comment along these lines would most likely give the Euro a boost.
Meanwhile the after party in the US appears to have just started given what appears to be a delayed reaction to Friday’s Employment report. Pricing expectations for a June hike are just under 80% and another hike before year end is now more than 60% priced ( last weeks these probabilities were 60% and 35% respectively). US Treasury yields are about 2-3 bps higher with the 10y note currently trading at 2.385%. The rise in yield has boosted the USD which has outperformed all G10 and most EM currencies over the past 24hrs. The Euro and European currencies are at the bottom of the G10 leader board, down between 0.70% and 1.10%. The AUD and JPY are in the middle of the pack, down 0.50%.
While the Japanese Yen’s underperformance can be largely attributed to the move higher in UST yields, the AUD underperformance is also due to another soft night for key AU commodities. Iron ore fell another 2.6% and is just above the US$60 mark, steam coal is down 4.9%, aluminium is -1.2% and metallurgical coal is -0.5%. Gold is essentially unchanged and oil prices are a little bit higher supported by comments from Saudi Arabia’s Energy Minister saying that he expected the OPEC led production cut deal to be extended until at least the end of this year.
Although the S&P500 made a new intraday high, it has closed the day flat while the Dow and NASDAQ have ended at 0.03%. Meanwhile the VIX closed at 9.77, its lowest level since late 1993 and it has yet again spark the debate on whether the outlook is really that positive or whether the low VIX reading is just a sign of market . Time will tell.
This morning on the Economic front we already had the release of German Industrial Production which came in at -0.4% versus -0.7% expected, and the Trade Balance which rose EUR 25.4 Billion versus 21.5 bn expected. We have no data due from the UK or the Euro-Zone this morning. However at 11.00 am we have the US NFIB Small Business Optimism. Finally at 3.00 pm we have the US JOLTS Jobs Opening and Wholesale Inventories.
The Fed Members are busy today with Kaskari, Rosengren and Kaplan all due to speak at 2.00 pm, 6.00 pm and 9.15 pm respectively.
June S&P 500
The S&P 500 reached a new intraday all-time high just after the opening yesterday afternoon, which was not confirmed by the Dow. This high occurred with a negative NYSE advance/decline ratio and a negative NYSE up/down volume ratio. These conditions suggest that the market is at or near at least a temporary top. Adding to my concerns was the negative -22 close in the McClellan Oscillator which could well have produced a second Hindenburg Omen. With the VIX closing at its lowest level since 1993, this is probably the most dangerous market conditions that I have seen in many years. However until we get a sell extreme that lasts for more than a few hours/days, the S&P is still a ‘’buy on dips’’. Today I will now move my buy level higher to 2385/2391 with a 2380 stop. My only interest in selling this market is still on a rally higher to 2407/2413 with a 2418 stop.
The Euro has had a huge run higher over the past few weeks and with the IMM data showing that Euro short positions have now disappeared as per last Friday’s data and my view on the Euro is beginning to change. Yesterday after the Euro hit my 1.920 initial buy level I emailed my Platinum Members my concerns and as a result we exited this position at 1.0931 and are now flat. As you know I have been extremely bullish of the Euro over the past nine months and we may well see the Euro trade lower to the 1.0630 ‘’Open Gap’’ which has prevailed since the first round of the French Election in late April. For me to turn short-term bearish of the Euro I need to see a break and close below 1.0860. Today my only interest in buying the Euro is on a dip lower to 1.0830/1.0870 with a 1.0810 tight stop.
June Dollar Index
Unfortunately the Dollar just missed my 98.40 buy level after I posted yesterday morning and I am still flat. The severity of the Dollar sell-off over the past few weeks is reflected in the latest Daily Sentiment Index data which shows Dollar bulls at just 20%. This is significant when you see how important the 98.00 support level is, remember a break and close below here opens up the possibility of a move lower to at least 95.00. Today I am going to continue to give this 98.00 level more respect and I will now raise my buy level to 98.50/98.90 with a 98.15 stop.
I am still flat the DAX which is trying to rally off yesterday’s 12660 low. Today I will raise my buy level to 12590/12645 with a 12545 stop. My only interest in selling the DAX is still on a rally higher to the key resistance level at 12870/12940 with the same 12995 stop.
Yesterday was one of the quietest trading sessions all year with the FTSE trading in a very narrow 30 point range. I am still flat and today I will raise my buy level slightly to 7200/7230 with a 7170 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow needs to break its March 1 high at 21169 to eliminate the negative divergence that I mentioned in my S&P commentary above. I will continue to look to sell the Dow on any rally higher to 21140/21200 with a 21250 tight stop. Given how low the VIX is trading I will now move my buy level higher to 20870/20930 with a 20825 stop.
The Bund has resumed its sell-off after trading higher for most of yesterday’s trading session. The rise in the US Treasuries is putting pressure on the Bund with the market trading lower to my initial 160.48 buy level. Subsequently after I was filled at this price I emailed my Platinum Members to only buy some more of the Bund at 160.15 with the same 159.90 tight stop. If I am stopped out of this position I will now be a more aggressive buyer on any further dip lower to 159.45/159.75 with a 159.20 stop.
Gold Rolling Contract
Gold has closed flat over the past three trading sessions with little or no movement. I am still flat myself as the market tries to hold up above its 1214 three month trend line. Below here Gold has very strong support at 1209/1207 where the 500 Day Moving Average comes in. As I am still long Silver I will now reduce my buy level in Gold to try and get the best risk/reward into these key support levels and will thus be a buyer from 1210/1217 with a 1204 tight stop.
Silver Rolling Contract
I am still long Silver at 16.40 from last Friday. Silver’s combined Futures Contract closed lower for 14 consecutive trading sessions through last Friday. The only longer closing streak since Silver began trading legally in 1975, occurred in March/April 1980. Silver’s DSI reading closed on Friday at 17%, which unfortunately is still above single digits which often attends price lows. My own view is that Silver is very near a low but we may need to see a spike lower first followed by a reversal higher (which normally results in an Upside Key Day Reversal) before we see this tradable low. Today I will continue to only add to my long Silver position at 16.10 with the same 15.70 stop. Meanwhile my T/P level will remain unchanged at 16.70.