European Equity markets closed sharply lower yesterday although they are rebounding this morning with US Stocks closing down 0.3% having been over 1% lower at one stage after I posted 24 hours ago. Both are watching the recent back up in Bond Yields, with an eye to what it may mean for earnings if sustained. Bond Yields in Europe were higher again, maybe on the news from Greece, maybe from an expectation for better growth. The US had a slight reprieve, with a small drop in Yields. This led to a decline in the US Dollar pretty much across the board, with even Emerging Market Currencies rallying, despite Asia’s FX sell-off yesterday.
The AUD outperformed, which is possibly a result of the fears of a ratings downgrade post the Budget being unfounded. If this is the case we would anticipate some pull-back today, as that news does not tend to influence Currencies for long. However the news from the Budget was pretty good, the deficit was better than the market expected with 2014/2015 at $41.1bn and 2015/2016 at $35.1bn with it tapering off after that. The impact on the economy is estimated to be relatively neutral.
Sentiment in Europe was not so good. The news that Greece has borrowed from its IMF Account, to pay its IMF obligations, has increased the concerns over the smoke and mirrors being used and raises worries about their ability to pay. The account they used must be repaid within the month, so the payment yesterday was not the relief to the markets that it should have been.
In the US, the Small Business data was mixed, with sentiment up but the Job Openings lower than expected. The Fed’s Williams is still in ‘wait and see’ mode with regards to interest rate hikes but his comment that the ‘Fed should not let policy be excessively predictable’ was very interesting. This is a considerable change from forward guidance and its volatility lowering properties.
This morning on the economic front we have Euro-Zone GDP at 10.00 am. Already Germany has reported its GDP which has come in lower than expected at +0.3% versus last Months 0.7% rise. In contrast France’s GDP has come in at +0.6% which is higher than the 0.5% expected. Before the Euro-Zone GDP data we have UK Unemployment and Average Earnings at 9.30 am along with the latest Bank of England Inflation Report. This is followed by the Minutes from the last ECB Policy Meeting at 12.30 pm. Finally at 1.30 pm we have US Retail Sales.
June S&P 500
The S&P plan worked very well yesterday as shortly after I posted the market was trading near the lows of the day at 2079 which enabled me to buy the market at 2084. Subsequently the S&P rallied hard as it managed to close its ‘Down Gap’ soon after the US markets opened which enabled me to cover this position at 2094 and I am now flat. Again the theory that you can only be short this market for a few hours rather than a few days was proved to be the correct one. As I mentioned yesterday unless and until we take out the two major supports at 2065/2070 and 2035/2040 I will not put on a more long term bearish position even though I do not like these markets at current levels. It is worth noting that the recent sell-off in the Dollar has given the US stock markets some support. Today I will again look to buy the market on any dip lower to 2089/2094 with a 2085 stop. I still do not want to be short the market at this time. Remember a break and close over 2118 will be short term bullish and opens up the possibility of a substantial move higher to 2190/2210 mad and all that this seems.
Please note that as some of my Members only trade the Cash S&P please adjust the above levels by adding 5.5 handles to the price levels mentioned in my commentary.
EUR/USD
The Euro just missed my 1.1190 buy level after I posted yesterday with a 1.1210 low and I am still flat. I still believe that with the back-up in European Bond Yields and the fact that the differential is narrowing with the US which is supporting the Euro, and that it is only a matter of time before the Euro takes outs its major resistance at 1.14. Today I will raise my buy level slightly to 1.1180/1.1210 with a tight 1.1155 stop on any long position. If the Euro breaks 1.1420 I will be a small buyer with a 1.1370 stop.
June US Dollar Index
I am still flat the Dollar and today I will lower my sell level to 94.70/95.00 with a 95.30 stop on any short position.
June DAX
Just as I posted yesterday morning the DAX went into free-fall with the market trading at the very bottom of my buy range at 11430. Subsequently the DAX turned around a few minutes later which enabled me to cover this position at 11490 and I am now flat. Remember given the extreme volatility in this market I am trading in very small size with a much larger stop as the market is spending all day just hunting stops and this is why we are getting so much whip/saw and two way trading. The major support for the DAX comes in at last Thursday’s low from 11170/11210 and I believe that it is going to take an awful lot of bad news to break this level unless of course the Euro again rallies hard from here. Today I will again be a small buyer on any further dip lower to 11380/11440 with a wider 11340 stop. If I am taken long and subsequently stopped out of any long position I will be a more aggressive buyer in front of 11230 with an 11130 stop.
June FTSE
The FTSE plan worked very well yesterday as shortly after lunch the FTSE traded lower to last Thursday’s breakout support at 6870. Subsequently the market has had a nice rally overnight which has enabled me to cover this position at 6920 and I am now flat. Today I will again be a buyer on any dip lower to 6860/6890 with the same 6840 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow plan also worked well yesterday as shortly after 6.00 pm the Dow spiked higher to my 18110 sell level before having a nice sell-off into the close which enabled me to cover this position at 18060 and I am now flat. I will continue with my strategy of selling rallies and today I will again look to go short on any further spike higher to 18190/18240 with a 18280 stop.
June BUND
The Bund had another wild trading session yesterday before finding good support at the 152.40 level. Twice we tested this level before attempting to rally. I am still flat and today I will be a small buyer on any dip lower to 152.25/152.70 with a 151.95 stop. If I am taken long and subsequently stopped out of any long position I will be a more aggressive buyer on any further dip to 150.90/151.50 with a wider 149.90 stop. I will also be a small seller on any rally higher to 153.90/154.30 with a 154.60 stop.
Gold Rolling Contract
Unfortunately Gold just missed my 1178 buy level with an 1179 low on Monday and I am still flat. Today I will raise my buy level slightly to 1179/1186 with a tight 1173 stop.
Silver Rolling Contract
Finally Silver is beginning to trade higher. I am still long at 16.40 and today I will raise my stop on this position to 16.10. If I am stopped out of this position I will be a more aggressive buyer in front of 15.80 with a 15.30 stop.
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