Oil remains at the centre of attention although yesterday’s dip was not of the same cathartic proportions as the previous 24 hours, but enough it seems to frighten the equity markets which had yet another wild trading session. US Energy stocks closed down another 1.2% with WTI and Brent down 0.4% and 0.8% respectively. The UAE’s Oil Minister said current Oil prices were unjustified but that there was little that could be done to defend it. Indeed the UAE intends to increase Oil production from the current 3m barrels per day to 3.5m despite calls from some OPEC Oil producers for cuts.
Currency-wise, the Ruble looks to have been the main casualty. On the flip side, USD/JPY has been testing lower, now trading this morning below 117. The much stronger Yen is weighing on the Nikkei which closed down nearly 2% this morning. Perhaps tellingly the US Dollar could not make further gains yesterday despite two pieces of much stronger than expected reports on the economy. The data was also reflective of FOMC-sensitive labour market/wage compensation strength. The US NFIB Small Business Index at 100.4 is now back to pre-recession 2006 levels, indicative of full small business participation in the expansion. Only one of the ten NFIB components fell.
UK headline inflation surprised on the low side with annual inflation in December of just 0.5%, the lowest since 2000, with core inflation coming in as expected at 1.3%.
This morning on the economic front we have Euro-Zone Industrial Production at 10.00 am. This is followed at 1.30 pm by the very important US Retail Sales. Finally at 7.00 pm the Fed will release its latest Beige Book. Earlier at 1.00 pm the Fed’s Plosser will speak on the economy in Philadelphia.
March S&P 500
Worryingly the US stock marked produced another Hindenburg Omen yesterday, which is the fourth one this year. I have never seen so many Hindenburg Omen’s in such a short period of time as we already had nine in the first two weeks of December. This is certainly a very dangerous and volatile environment as shown by the price action yesterday. I mentioned that the 2016 was a key support and after I posted, the market traded to a high of 2051 before falling an incredible 50 handles off this high. Subsequently the S&P rallied into the close with the official close been confirmed at 2016.10.
This morning the market is opening a lot lower and we have to watch the USD/JPY exchange rate very carefully as if the Yen continues to strengthen this will not be good for the US stock market. The USD/JPY has broken some key levels to the downside over the last 48 hours and a closing break of 115 will probably see the S&P accelerate lower.
Today I will be a small seller on any rally back to 2011/2017 with a tight 2022 stop. Given how precarious this market is trading, I do not want to be long the S&P at this time as there is every chance we can go back down to test the major support at 1860/1890 where I will be a very aggressive buyer if this scenario plays out.
Euro/USD
By the time I posted yesterday morning the Euro was trading near the bottom of my buy range at 1.1790 I am still long and I will leave my stop the same at 1.1745 as I am still looking for a buy extreme to emerge over the next few days.
US Dollar Index
No change as I am still short from last week at 92.70 with the same 93.20 stop. Again if the Dollar breaks 91.90 I will lower my stop to 92.50 on this short position.
March DAX
The price action in the Dax is changing so far this year compared to 2014 as every dip is been bought by traders as the market views the upcoming QE from the ECB as positive. So far in 2015 the Dax is outperforming the major US Stock Indices and looks like this trend will continue. Yesterday I was very unlucky with my Dax trade for as soon as I went short at 9910, I was stopped out of this trade at 9950. The market subsequently fell over a 100 points from this level and I am still flat. The 9640 level still remains as major support and given the price action off this low on Monday it will take a lot of bad news for this support to give way. Today I will raise my buy level to 9740/9780 with a 9695 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 9650 with a 9595 stop.
March FTSE
The FTSE ended yesterday with a very bearish Key Day Reversal to the down side as the market having made a higher high at 6500 yesterday morning, then collapsed in late trading and is currently trading below 6400. The fact that we broke and closed substantially below the key 6480 pivot is important and today I will be a small seller from 6430/6470 with a tight 6505 stop. My only interest in buying the FTSE is on a dip to 6290/6330 with a 6260 stop.
Dow Rolling Contract
Sometimes you are just very unlucky in trading and yesterday’s move in the Dow was certainly very frustrating for me. After I posted the Dow traded higher to my 17770 sell level before stopping me out of this trade right at the high of the day at 17830. The market subsequently got slammed and is now trading over 400 points lower. This is extremely frustrating as my view all year is to sell rallies. Today I will again try the sell side on any move higher to 17610/17670 with a wider 17750 stop. Given the volatility I have to use wider stops.
March BUND
My short 156.90 Bund position worked out well yesterday as the market had a nice sell-off after I posted which enabled me to cover this position at 156.60 and I am now flat. This morning the Bund is again trading near all time highs and today I will be a seller on any further rally to 157.25/157.60 with a 157.80 stop.
Gold Rolling Contract
Overnight Gold has traded lower to my 1228 buy level. I am still long and I will leave my stop the same at 1216 which is just below Monday’s low.
Silver Rolling Contract
Silver briefly rallied over 17.00 before getting hit overnight. I am still long at 16.30 and given the negative price action I will raise my stop to a breakeven. If I am stopped out of this trade I will again look to buy Silver on any drop to 15.80/16.20 with a 15.45 stop.
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