Reaction to Fed Chair Yellen’s semi-annual Testimony before the Senate triggered a sell-off in US Treasury yields and a broad US Dollar rally as she left the door open for a rate hike as soon as the next FOMC meeting in March. US equities initially wobbled, dragged lower by the rate sensitive utility sector, but they soon rallied as both the Dow and S&P closed again at new all-time highs with a gain of 0.40% and 0.32% respectively. In line with previous comments, Dr Yellen noted “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession”. She also noted that if job gains and rising inflation continue as the Fed expects, an increase in the benchmark Federal Funds rate likely would be appropriate “at our upcoming meetings,”. In regards to potential changes to fiscal policy, the Fed Chair reiterated her view that it is too early to know, noting that most Fed officials “have taken the view that they want greater clarity about the size, timing, and composition” of fiscal policy before factoring its impact in their forecast.

To mark my 1275^th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.

For anyone following my Platinum Service it made 88 points yesterday and is now ahead by 825 points for February having made 1734 points in January, 1351 in December, 1971 in November and 1582 in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.

Ahead of Yellen’s Testimony the USD was trading with a soft tone and UST yields were essentially range bound following yesterday’s news of the resignation of Trump’s National Security Adviser Michael Flynn. But reaction to Yellen’s Testimony triggered a selloff in UST yields and a broad USD rally. 10y UST initially jumped from 2.4376% to 2.50% and have settled around 2.47%. 2y UST climbed 3bps to 1.23% and OIS pricing for a March rate hike nudged up slightly from 9bps to 10bps. Meanwhile more than two full hikes are now priced for this year, some 57bps (previous close was 54bps).

The US Dollar Index closed up 0.36% and the currency is stronger against most G10 with AUD and CAD the two exceptions. The AUD is once again at the top of the leader board, up 0.13% seemingly still basking in the sun following yesterday’s solid NAB business survey. The report showed Conditions jumped a solid 6 points to +16 in January, while confidence also rose, up 4 to +10, both clearly above their long term average. Sterling and the Japanese Yen are at the bottom of the pile, down 0.44% and 0.39% respectively. UK CPI figures were expected to show 1.9% y/y but actual print was 1.8%; lower than US, China and Germany despite last year’s Brexit vote. Meanwhile, the move lower in JPY was consistent with its inverse relationship with longer dated UST yields.

As for commodities, it has been a bit of a mixed 24 hours. Iron ore had a quiet day, down 0.6%, but it is still trading above $91. Oil prices are up between 0.6% and 0.8%, gold is unchanged at $1223.6 and copper is down 1.5%.

The Fed’s Lockhart (none voter) said that he could easily be persuaded that three rate hikes would be appropriate in 2017, but he doesn’t see compelling reason for a March hike. Meanwhile Fed member Kaplan (voter, hawk) said the US is making good progress toward full employment and inflation near its 2 percent goal. He then added that if you wait to see evidence of overheating, you’ve probably waited too long.

This morning on the economic front we have UK Jobless Claims and Average Earnings at 9.30 am and this is followed at 10.00 am by Euro-Zone Trade Balance. At 12.00 pm we have US MBA Mortgage Applications and at 1.30 pm we have US CPI and Retail Sales. Finally we have Industrial Production at 2.15 pm followed by the NAHB Housing Market Index and Business Inventories at 3.00 pm

At the same time Fed Chair Yellen will deliver her Semi-annual Testimony to the House Panel. The speech is expected to be an almost exact replica to her Senate testimony, but there is always the potential that we may learn something new in the Q&A session.

March S&P 500

Unfortunately the S&P just missed my 2315 buy level with a 2319 low print following Fed Chair Yellen’s remarks about hiking Interest Rates. Subsequently the S&P traded to a 2236 high and this rally saw the market hit my 2234 sell level. As we were having a profitable day plus the fact that the S&P hit my sell level late in the trading session, I emailed my Platinum Members to cut this position at 2331.50 and I am now flat. Overnight the S&P rallied to a new all-time high at 2340. There is no doubt that the market is in the ”Blow off Phase” of this incredible rally with the S&P now up 14% in the last two months of the post Trump election victory low with the Earnings Ratio now over 26 for the S&P. To put this ration into context, on October 1, 2007 the S&P traded at an historically high PE ratio of 20.68 before the market nosedived to its March 2009 low at 666. I am not saying that we are going to crah from here but there is no doubt that this market is extremely overbought, trading at the top of both its Daily Bollinger Band and Williams Index, while the RSI is back near an overbought 78. However until we get a sell extreme that lasts for more than a few days we can only do as we have been doing for the last few years is to go short when the market is overbought and take your profit, otherwise it will evaporate. Today in keeping with the same strategy I will again look to sell the market from 2343/2349 with a 2354 stop. I will also raise my buy level to 2322/2328 with a 2317 stop which is just below yesterday’s low print.

EUR/USD

Thankfully after I posted yesterday morning the Euro rallied and this rally enabled me to cover my 1.0605 long position for a small gain at my 1.0630 T/P level and I am still flat as the market just missed my second buy range. Today I will lower my buy range slightly to 1.0495/1.0535 with a 1.0465 tight stop. I still do not want to be short the Euro at this time especially with both growth and inflation picking up in Europe.

March Dollar Index.

The US Dollar rallied strongly yesterday as the market continues to correct its January 5% fall and I am still flat. The Dollar has strong resistance from 101.80/102.20 and I will use any further rally to go short in this area with a 102.50 stop. Meanwhile I am not going to chase this market and I will only raise my buy level slightly to 100.40/100.75 with a 100.05 stop.

March DAX

This morning the DAX is trading over its key resistance level at 11800. So far we are not seeing any follow through but as mentioned yesterday a close over this level targets 11940 and then 12030 over the coming days. I am still flat the DAX and I have to respect the price action in the market. For this reason I will now raise my buy level to 11700/11750 with a 11660 stop. Naturally I do not want to be short the DAX at this time.

March FTSE

The FTSE which has underperformed the other major Indices over the past few weeks is beginning to get its mojo back. This morning the FTSE is only trading 60 points below its January all-time high at 7292. However the market is again trading at the top of its Daily Bollinger Band and I will now look to sell the market on any further rally to 7265/7300 with a 7330 stop. Given how overbought the FTSE is trading I do not want to be long the FTSE at this time.

Dow Rolling Contract

Thankfully again we exited any short Dow position yesterday morning with the Dow trading 20 points below my 20405 average sell level before again rallying strongly following Yellen’s Testimony to the Senate. Overnight the Dow hit my 20545 sell level with a 20555 high print. This short position is up against the 7 month trendline that I mentioned in yesterday’s commentary. There is no doubt for anyone trying to go short the Dow over the past few weeks has not been a pleasant or rewarding experience but if you are trying to pick a top in a severely overbought market then this is a good place to do so. I have gone short in small size and I will now lower my stop on this position to 20605. I will also raise my T/P level to 20500 as I try to get flat ahead of Yellen’s Testimony to the House Panel this afternoon.

March BUND

The Bund got hit hard yesterday on Yellen as it followed the US Treasuries lower. The Bund has very strong support from 162.65/163.05 and today I will be a buyer in this area with a 162.35 stop.

Gold Rolling Contract

I am still flat Gold which is trying to stabilise after its $20 fall earlier in the week. Today I will lower my buy level slightly to 1210/1217 with a tight 1203 stop.

Silver Rolling Contract

My Silver plan worked well yesterday with the market rallying after I posted yesterday morning and this rally enabled me to cover my long 17.80 position at 18.00. Subsequently I emailed my Platinum Members to re-buy Silver again at 17.80 before exiting this position for another gain at 17.97 and I am now flat. Today I will again look to buy Silver on any dip lower to 17.50/17.80 with the same 17.25 stop.

I am lecturing again in the Dublin offices of IG Index tomorrow evening at 6.00 pm and if anyone would like to attend they can register on the following link:

https://www.ig.com/uk/trumps-presidency