Equity markets drifted lower in the post-holiday US trading session yesterday despite a weaker than expected NFIB Small Business Survey. However the markets were not helped by comments by the Fed’s Lockhart suggesting that the Fed’s Bond Buying Programme (QE) will be on the agenda at the December meeting. Emerging markets continued under pressure with the prospect of an early start to Fed tapering. The Brazilian stock market closed down another 1.8% yesterday and is now down nearly 9% off it’s October 22 high, driven down by oil companies as the price of oil slumped. Brent Crude is now trading at $106 a barrel off a high of nearly $117 at the end of August.
Tapering talk from Fed officials continued yesterday with FOMC participants Kotherlakota and Lockhart signalling that they are not in favour of an early start to reducing the Fed’s Bond Purchasing Programme but markets seized on comments from Lockhart ‘that the December meeting is one in which some discussion of tapering could well take place’ as another sign that the Fed is preparing to act. New Fed Chair Nominee, Janet Yellan, is set to testify before Congress at her nomination hearing on Friday and this will be an important opportunity to gauge her current disposition on policy.
This morning on the economic front we have the UK Unemployment Rate at 9.30 am which is expected to be unchanged at 7.7%. The Bank of England will also release it’s latest Quarterly Inflation Report and this is likely to give some clues as to the likely direction of UK Monetary Policy. At 10.00 am we have the Euro-Zone Industrial Production and this is followed later from the US by the Monthly Budget Statement.
December S&P 500
The S&P worked well yesterday as finally the market traded down to my 1760 buy level before having a nice rally into the close and I was able to cover this position at 1765 and I am now flat. As I mentioned yesterday the key level going forward is the 1775 high from last Thursday and as long as we stay below 1775 the market is bearish but a break and close over 1775 will be very bullish and could lead to a test of 1810 and possibly 1840. Today I will be a seller on any rally to 1770/17740 with a 1777 stop and I will be a small buyer on any dip to 1750/1754 with a 1747 stop. If the S&P can break and close below 1740 it will be the first sign that we have put in at least a short term top in the market.
Euro/USD
The Euro also worked well yesterday as the market traded up to my 1.3450 sell level before having a small sell off and I was able to cover this position at 1.3430 and I am now flat. Today I will move my sell level higher to 1.3470/1.3500 with a 1.3520 stop. I will also be a small buyer on any dip to 1.3330/1.3360 with a 1.3315 stop.
December DAX
Shortly after I posted yesterday morning the Dax sold off to my 9080 buy level before having a small rally and I was able to cover this position at 9102 and I am now flat. The key level for the Dax going forward is 8980 and as long as we stay over this level the market is okay but a break and close below here will the first warning sign that the Dax may be in trouble. Today I will lower my buy level to 9000/9025 with a 8970 stop. I will also be a small seller on any rally to 9090/9120 with a 9130 stop which is just above yesterday’s high.
December FTSE
The FTSE had a volatile day yesterday albeit in a very narrow trading range as the market is trying to hold on to the key 6670 support zone. After I posted yesterday the FTSE traded down to my 6690 buy level before having a small rally and I was able to cover this position at 6710 and I am now flat. I think the FTSE is trading heavy here and today I will be a small seller from 6695/6720 with a 6735 stop. I do not want to be long the market today.
Dow Rolling Contract
The Dow tried to rally yesterday afternoon but the market just ran into a lot of sellers before trading lower and I am still flat. Today I will lower my sell level to 15750/15780 with a 15810 stop which is just above yesterday”s high. I still do not want to be long the Dow at this time.
December BUND
No change as I am still an aggressive buyer on any dip to 139.90/140.15 with a 139.70 stop.
Gold Rolling Contract
Gold continues to trade heavy and at the bottom of both the Williams Index and Bollinger Band but interestingly the Williams Index has given a buy signal this morning. Late yesterday evening Gold traded down to my 1266 buy level. After a small rally Gold is higher overnight and I have cut half my position this morning at 1273 and I will leave a 1259 stop on the other half. If I am stopped out of this position at 1259 I will be a reasonable buyer on any dip to 1248/1254 with a 1245 stop.
Silver Rolling Contract
Unfortunately I was stopped out of my 21.25 long position yesterday at 20.80 and I am now flat. Silver is also oversold here and today I will be a buyer on any dip to 20.20/20.50 with a 19.80 stop.
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