You would think it was a quiet trading session yesterday: US equities were flat, European stocks a little down and currencies traded in a very tight range. US yields continued to rise, as did their European counterparts. But digging a little deeper shows that the bond sell-off is broadening through Emerging Markets and down the credit spectrum. Measures of bond risk are rising too.
For anybody interested in my New Platinum Service, it made 130 points yesterday, and 170 points on Monday. Last week it generated 955 points. If anybody is interested please email me on bryan@tradernoble.com for more information.
They are catching up to the fact that the move in US and German yields might be here to stay; the Fed might just pull the trigger and we enter an environment that hasn’t been seen for quite some time. It isn’t often that it is the Bond market that is exhibiting the most concern about risk. This has to do with the long period (post financial crisis) of excess market liquidity, driving down yields and raising issuance in EM. In a world of very low interest rates, there was a search for yield in these markets. They might not have had the high yields of old, but they were better than in the developed markets. In the period of adjustment, back to reflecting more of the actual risks, that could provide some periods of uncertainty ahead. Baby steps for now, just something to keep an eye on. It was added to late yesterday, when the ratings agency S&P downgraded Deutsche Bank, RBS and Barclays banks. They did this as they note that the Government support, in the event of market crisis, may no longer be there.
Governments may no longer be willing to bail them out. That implicit guarantee has been around for a while now, and (we hope it is not needed) but it would have to be tested to get an idea of how seriously Governments would stick to their guns on this one. But that implicit guarantee, not only on banks but also on other strategically important institutions, States and others has also helped lower risk pricing. Interesting, if markets come to believe it is no longer there.
The data yesterday was focuses in the US and very positive, but doesn’t always get much attention. The US JOLTS job opening series was the best since December 2000, and the NFIB Small Business survey was better than expected. Both series showed better job prospects, but there is also a sign that employers are being “fussy” as to whom they employ (not choosing long term unemployed, for example). That might have the effect of pushing up wages over time. This pushed up yields, but other markets, particularly the FX market was pretty uninterested.
This morning on the economic front we have UK Industrial Production which is due to be released at 9.30 am. We have no data of note due from the Euro-Zone while the only US data release today is the Monthly Budget Statement and this will be released at 7.00 pm.
June S&P 500
My S&P plan worked very well yesterday as shortly after the European Markets opened the S&P was trading in the middle of my buy range at 2073 before having a nice rally after the US markets opened which enabled me to cover this position at 2083 which was outlined to my Platinum Members and I am now flat. The McClellan is getting near oversold levels while the S&P continues to trade at the bottom of its Bollinger Band which makes me reluctant to sell the market at current levels especially since we are still sitting over the next major support at 2065/2070. Today I will again be a small buyer on any dip lower to 2069/2074 with a 2064 stop. Again 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 printed. I still believe that this market will have one more decent rally before the real sell-off starts.
EUR/USD
The Euro had another wild trading session yesterday but interestingly the market managed to again close over the key 1.1250 pivot point. The Euro having traded higher to a high at 1.1340 subsequently got sold off which enabled me to go long at 1.1240. I am still long and I will leave my stop the same at 1.1190. If I am stopped out of this position I will be a more aggressive buyer in front of 1.1150 with a 1.1095 stop. I still do not want to be short the Euro at this time.
June Dollar Index
The Dollar also traded higher to my 95.80 sell level. I am still short and I will leave my stop the same at 96.40.
June DAX
The DAX had another wild trading session which is nearly the same theme every day. I came into yesterday’s trading session long at 11020 only to be stopped out of this position for a small loss at 10960. Thankfully I had a re-buy at 10900 which got executed and after a nice rally I was able to cover this position at 11010 as indicated to my Platinum Members and I am now flat. The DAX is very oversold on both a Daily and Weekly Basis, and while this may persist for a while I am still looking for a buy extreme that holds for more than a few hours. Today I will again be a small buyer on any dip lower to 10870/10920 with a wider 10790 stop. I still do not want to be short the market at current price levels.
June FTSE
The FTSE plan also worked well yesterday as the market had a nice sell-off soon after the London Market opened which enabled me to go long at 6730 before having a nice rally which enabled me to cover this position at 6770 and I am now flat. Today I will again be a small buyer on any dip lower to 6680/6710 with a 6650 stop. Given how oversold the FTSE is I do not want to be short the market at this time.
Dow Rolling Contract
The Dow plan also worked well yesterday as shortly after the European Markets opened the Dow traded lower to my 17740 buy level with a 17705 low before having a nice rally which enabled me to cover this position at 17800 and I am now flat. Today I will again be a small buyer on any further dip to 17680/17730 with a 17640 stop. Given how oversold the Dow is currently trading I do not want to be short the market at this time.
September BUND
The BUND plan did not work out yesterday as soon after I went long at 150.00 I was very quickly stopped out of this position near the lows of the day at 149.40 and I am now flat. Although the BUND is extremely oversold the weight of positions which are long this market at levels way above the market is frightening. Remember only a few weeks ago the Bund was trading at just 6 basis points and is now trading near 1%. I am going to stand aside the BUND today unless we trade lower to 148.50 where I will again be a small buyer with a 147.90 stop.
Gold Rolling Contract
Gold is trying to rally but I am still reluctant to chase this market higher and I will leave my buy level the same at 1157/1165 with the same 1148 stop.
Silver Rolling Contract
No change as I am still long at 15.90 with the same 15.40 stop.
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