Opinion – Wednesday 13 August 2014

A cautious mood was prevalent in yesterday’s markets with geo-politics and a weak German ZEW Survey the dominant drivers. Geo-Political flashpoints garnering most attention include cynicism regarding the Russian aid convey bound for Eastern Ukraine, an increasingly fractious political power struggle in Baghdad and Syrian troop advances toward the rebel town of Aleppo. This was reflected in small-scale losses in US stock Indices by around 0.2% on average and which followed another down day for European Stocks led by the Dax. The VIX Index however is a touch lower at 14.13. The US Dollar ended the day slightly stronger at 81.52 whilst European Bond Yields ended the day mostly lower.

A very weak German ZEW  Survey  led to the Euro falling back to its recent lows as the ‘Current Situation’ reading plunged to 443 from 61.8 and the ‘Expectations’ to 8.6 from 27.1. The Euro bottomed at 1.3336 before staging a late rally. However in contrast to the weak European data, US data provided further encouragement regarding a strengthening labour market. The JOLTS series (Job Openings and Labour Turnover) came in at 4671k last month, the highest since 2001, whilst the NFIB Small Business Optimism Index improved to 95.7 from 95.0, it’s second best reading since 2007.

This morning on the economic front we have UK Unemployment and Average Earnings at 9.30 am. This is followed at 10.00 am by the Euro-Zone Industrial production, including Germany which will be closely watched after yesterday’s horror ZEW Survey. At 10.30 am we have the Bank of England Inflation Report and this is followed at 1.30 pm by the latest US Retail Sales.

September S&P 500

Just after I posted yesterday morning the S&P made its high at 1838.75 just missing my 1839 sell level before having a nasty fall on the German ZEW Survey. Eventually it traded down to my 1926 buy level and after a nice rally shortly after the US markets re-opened last night I was able to cover this position at 1932 and I am now flat.

As I have mentioned over the last few days this is a nominal expiration week with the Options Contracts expiring on Friday making me reluctant to be short the market for any length of time as the S&P continues to defy logic and rally no matter what bad news is thrown at it. Today I will again be a small buyer on any dip to 1922/1927 with a 1919 stop. My only interest in selling the market is on a rally to 1940/1945 with a 1948 stop.

Euro/USD

The Euro traded lower on the release of the weak ZEW survey and eventually traded down to my 1.3350 buy level. I am still long and I will leave my stop the same at 1.3325 which is just below last week’s low.

US Dollar Index

No change as I am still a buyer on any dip to 81.10/81.30 with the same 80.75 stop.

September DAX

The Dax plan did not work out yesterday as shortly after the German ZEW Survey was released the market hit my 9100 buy level before unfortunately stopping out at the lows of the day at 9055 before the market rallied into the close and I am still flat. It very hard to be long the Dax at this time especially given how weak the recent economic data has been. For this reason I will lower my sell level to 9150/9180 with a 9210 stop. My only interest in buying the Dax for a short term trade is in front of 8920 with a 8880 stop.

September FTSE

The FTSE is trying to consolidate off last week’s low and I have been on the sidelines for the last two trading days and today I am going to be a small buyer on any dip to 6555/6575 with a 6520 stop. I do not want to be short the FTSE at this time.

Dow Rolling Contract

My Dow 16600 short position from Monday worked out well yesterday as the market was heavy all day and after a nice sell-off I was able to cover this position at 16550 and I am now flat. Today I will again be a seller on any rally to 16620/16660  with a 16690 stop. I still do not want to be long the Dow at this time.

September BUND

No change as I am still a small seller from 14960/149.90 with a 150.10 stop.

Gold Rolling Contract