In contrast to market moves either side of the weekend whereby rising bond yields supported the US Dollar but had a restraining impact on US Equities, yesterday’s price action saw Treasury Yields and Equities both smartly higher. The S&P and Dow both gained 1% as the US Dollar Index pushed clearly through its previous 2013 high to close up 0.4% at 83.60. Amid the fresh back up in Treasury Yields with 10 years +5 bps to 1.97% and now within 10 bps of their 2013 highs made on March 11th, it is unsurprising that it is the currencies of countries that maintained conventional monetary policies post-crisis that are faring the worst now (NOK, SEK, CAD, AUD and NZD). Across the board, extension of US Dollar strength has inevitably exacted a further toll on commodity prices with Oil off 1%, Gold down another $10 and Industrial Metals all weaker, led by Copper with a drop of more than 2%. Supportive of the moves in US Equities and Bonds has been a bigger than expected improvement in the NFIN Small Business Optimism Survey which rose to 92.1 versus 89.5 last time and 90.3 expected. Vibrancy in the SME sector is seen as absolutely vital to self sustaining recovery and ongoing job creation.
European news was less encouraging with the German Zew Survey of Economic Sentiment reading little changed at 36.4 from 36.3 and well below the 40.0 expected. An upgrade to Greece’s credit rating by Fitch to B- from CCC had helped the Euro higher earlier before it fell late in the day, and overnight, and is now well below the critical 1.2950 support zone.
Today is a very busy one for economic data. This morning we have the UK LLO Unemployment Rate and the BOE releases its Quarterly Inflation Report. We have Euro-Zone GDP including France and Germany and later from the US we have PPI, Industrial Production, NAHB Housing Market Index and the Empire Manufacturing Index.
June S&P 500
Very unlucky as the S&P just missed my 1624 buy level before having another massive up-day as the market rose for the 18th Tuesday in a row. The S&P was down earlier on the back of the weak German Zew Survey but once New York opened it just traded higher all day without any pull back as every Bear is now getting taken out. The market rallied to my 1632 sell level before quickly stopping me out at 1637 and I am now flat. Yesterday was another day which illustrated how vital it is to have stops in place. The next main resistance area for the S&P does not come in until 1665/1680 and the big question is ‘what to do here?’. Despite yesterday’s strong market, Apple had a very bad day weighing on the Nasdaq. Today I do not want to chase the market and I will only look to buy on any dip to 1635/1640 with a 1632 stop. The 1630/1633 which acted as good resistance for the last week should offer good support here and it is going to need a break of 1630 for the market to turn short term bearish. I will also be a small seller on any further rally to 1652/1656 with a 1658 stop and I will be a more aggressive seller in front of 1670 with a 1682 stop. If it breaks 1630 I will also look to go short with a 1636 stop.
In all my years of trading the S&P it is along time since I have seen a market as so overbought and from my experience this will not end well so I am treading carefully!
Euro/USD
The Euro worked well yesterday as we traded down to my 1.2960 before having a small rally. I took profit at 1.2990 and I am now flat. The late break and close below 1.2950 could prove significant and today I will look to go short the Euro in small on any rally to 1.2930/1.2950 with a 1.2970 stop. I do not want to be long the Euro at this time as the next main support does not come in until 1.2750/1.2800.
June DAX
The Dax also worked well yesterday as after the Zew Survey was released the market traded down to my 8250 buy level with a 8235 low. I took profit at 8295 and I am now flat. The Dax is well supported at the 8200 level and we have strong resistance at 8400. Today I will still look to sell the Dax on any further rally to 8360/8390 with the same 8410 stop. A break and close over 8400 will be short term bullish.
June FTSE
The FTSE just missed my 6580 target profit level with a 6585 low before stopping me out at 6635 on my 6610 short position and I am now flat. The FTSE is extremely overbought and for this reason I find it very hard to buy the market up here. If it can stay over 6630 for 2/3 days I will look to go long the market. Today I will be a small seller from 6670/6700 with a 6720 stop. If it breaks back below 6630 I will go short again with a 6650 stop.
June BUND
The Bund is very oversold and the market dropped down to my 144.35 buy level just below the close last night. I will leave my stop the same at 144.20 and I will look to take profit on any rally to 144.65/144.85.
Gold Rolling Contract
As expected, Gold has found massive resistance at the 1470/1490 area and is now down at 1415 as I write this update. Gold looks heavy here but the market should find support in front of 1400. Today I am a small buyer from 1405/1415 with a 1395 stop. My main interest in buying Gold does not come in until 1280/1300 where I will be a very aggressive buyer.
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