US stocks rose for the third consecutive trading session with a late rally having spent most of yesterday in the red. There was no obvious catalyst for the intra-day turnaround, with all sectors bar energy showing similar sized gains. As yet again it is so difficult to stay short the market for any length of time before the ‘’buy the dip’’ crowd return. Energy stocks are being pressured by the sharp fall in oil prices in recent days – Brent and WTO crudes both off 12-13% in February to date, and where the sharp rise in the North American rig operating rig count and signs of inventory rebuilding have added significant momentum to moves that initially began when the US Dollar started finding its feet at the beginning the month. I was listening to BP CEO Bob Dudley being interviewed on the business channels last evening and he was adamant that the efficiency and speed to market of the shale oil producers meant that $50-65 was a much more realistic range for Brent crude in the coming few years than the $70+ levels we witnessed (briefly) last month. The oil-sensitive Canadian dollar is the weakest G10 currency.
To mark my 1525th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day This offer is open to both new and existing members and if anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 15 points yesterday and is now ahead by 1241 points for February having made 879 points in January, 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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Bond markets have not done a lot a lot with the Treasury yield curve (2s-10s) a few basis points flatter thanks largely to a 2-3bps uptick in 2-year yields (gains that are testament to market nervousness ahead of this afternoon’s all important US CPI release (more below). We had comments from Jerome Powell yesterday afternoon following his swearing in as Fed chair, who said that global economy is recovering strongly for the first time in a decade, that the Fed is in the process of ‘’gradually’’ raising rates and trimming its balance sheet, and that ‘’we will remain alert to any developing risks to financial stability’’. Cleveland Fed President Loretta Mester also spoke and was non-committal about how many rate hikes she favoured this year (or indeed whether March was the likely date for a next move). Gradual rate hikes are still appropriate, she says.
The more interesting market moves have been in FX, where significant USD/JPY slippage in our day Tuesday (testing 107) was pressuring the DXY index (13.6% weight) alongside a failure of Japanese equities to key positively off the prior two days US stocks market gains. The pair lost another 0.5% to 106.90 in Asia, with pressure on USD indices then compounded by a jump in Sterling after December’s inflation figures printed 1/10% stronger than expected to leave annual CPI inflation at 3.0% rather than fall back to 2.9% as had been expected.
EUR/USD has also been finding some love following the early month drop from 1.25 to 1.22. The general point to make about the big dollar here is that there is rightly now more focus on the ‘’twin deficits’’ implications of US tax reform (and the spending increases approved last week) rather than the potential short term growth/Fed policy implications. Rising twin deficits historically go hand in hand with a falling US dollar.
AUD has been more of a sideshow in the last 24 hours but has suffered a bit alongside other commodity currencies. There was little reaction to yesterday’s NAB Business Survey, which overall conforms with the RBA view of economy – better activity, but retail lagging, prices and wages not showing much movement as yet, but capacity use trends suggests reasons for expecting that they will pick up in time. In a speech by RBA assistant governor Luci Ellis yesterday, she noted that ‘’our central forecast is that this weakness will end as the drag from the end of the boom dissipates and spare capacity is absorbed, such that average earnings growth recovers. There is no guarantee of this, though, and therein lies the risk’’.
This morning on the Economic Front we already had the release of German CPI which came in as expected with a -0.7% print while GDP rose 2.3% versus 2.2% expected. At 10.00 am we have Euro-Zone GDP and this is followed at 12.00 pm by US Mortgage Applications. Next at 1.30 pm we have US CPI where the consensus is for a rise of 0.4% after last month’s 0.1% increase. We also have US Retail Sales at 1.30 pm and this is followed by Business Inventories at 3.00 pm.
Meanwhile the ECB’s Mersch speaks in Frankfurt this morning at 10.20 am.
March S&P 500
Yesterday was a frustrating trading session with the S&P just missing my buy level with a 2634.50 low print before rallying twice to just shy of my 2670 sell level before having a late sell-off. At 9.40 pm I emailed my Platinum Members to cancel any sell level in both the S&P and Dow especially ahead of the US CPI data at 1.30 pm. As I mentioned yesterday there is every possibility that the market is going to rally to the strong resistance area at 2750/2775 before we see a more sustained sell-off. Yet again the McClellan Oscillator has proved itself to be a fine indicator of when a stock market bottoms with the MO again improving to close last night with a -80 reading. Meanwhile the Fear & Greed Index is still showing Extreme Fear with a reading of -13 which has only improved slightly from last week’s -7. Today I will now raise my buy level to 2654/2663 with a 2648 stop. The S&P has initial resistance from 2698/2708 and today I will be a small seller in this area with a 2714 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 2750/2775 with a 2792 stop.
EUR/USD
The Euro continues to rally and I expect the market to test the recent high at 1.2537 ahead of the stronger resistance from 1.27/1.29 where I would expect a more sustained sell-off to occur. Today I will now raise my buy level to 1.2280/1.2320 with a 1.2245 stop.
March Dollar Index
Overnight the Dollar traded lower to my 89.35 buy level. As I wanted to bank some points for yesterday’s trading session I emailed my Platinum Members to exit any long position at 89.50 and I am now flat. Today I will again look to buy the Dollar on any dip lower to 88.70/89.15 with a 88.30 stop.
March DAX
Unfortunately the DAX just missed my 12160 buy level with a 12175 low print before rallying strongly this morning and I am still flat. Today I will now raise my buy level to 12130/12200 with a 12080 stop. Given the strength of the Euro I do not want to be too aggressive with my buy level.
March FTSE
The FTSE also just missed my 7075 buy level before rallying as expected helped by the renewed weakness in Sterling and I am still flat. Today I will now raise my buy level to 7080/7120 with a 7050 stop. I stil do not want to be short the FTSE at this time.
Dow Rolling Contract
It is so difficult to be short the US stock markets as one bullish pundit after another is rolled out on CNBC saying what a healthy correction and aberration last week’s aggressive sell-off was. I disagree with this scenario and after we correct the severe technical conditions of the market I expect the Dow to trade substantially lower. The next resistance level for the Dow is from 25000/25125 and I will be a seller here with a 25200 stop. The strong resistance area is from 25725/26025 where I will be a more aggressive seller with a 26200 stop. Today I will be a small buyer on any dip lower to 24590/24670 with a 24530 stop.
March NASDAQ
Having stood aside in the NASDAQ for the past two days I will now look to buy market on any dip lower to 6500/6545 with a 6460 stop. I still do not want to be short the NASDAQ at this time.
March BUND
I am still flat the BUND and today I will now raise my buy level to 157.55/157.95 with a 157.25 stop.
Gold Rolling Contract
No change as my only interest in buying Gold is on a dip lower to 1305/1315 with a 1298 stop.
Silver Rolling Contract
I still do not trust this market even though the US Dollar is weaker and will therefore leave my buy level unchanged from 16.05/16.35 with the same 15.70 stop.
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