Opinion – Wednesday 16 April 2014

US equity markets managed to end the day in positive territory yesterday despite some poor economic data and ongoing tensions in Ukraine. The S&P 500 closed up 0.7% despite been down over 1% earlier in the session whilst the turnaround in the NASDAQ was even more dramatic having been down almost 2% before closing 0.3% higher.

Markets overcame some earlier weakness after the NAHB Homebuilder Index disappointed, rising to just 47 in April from 46 and versus 48 expected and still well below the 56 level seen in January. The Empire Manufacturing Index was also soft falling to 1.3 in April from 5.6 when a rise to 8.0 was forecast. Meanwhile the March CPI came in at 0.2% for the headline and core in March, slightly better than the 0.1% growth anticipated.

European stock markets fared much worse with an average loss of 1%. Sentiment was hit by the ongoing tensions in Ukraine where a military operation is underway in the Eastern Donetsk region against pro-Russian protesters whilst Russia continues to warn of civil war.

The situation in Ukraine was also partly responsible for the fall in the German ZEW expectations Index in April to 43.2 from 46.6, the forth consecutive monthly decline. Better news for the headline index which rose from 51.3 to 59.5 in April reflecting the acceleration in growth in Q1 and pointing to a further acceleration in growth in Q2 if the gains can be maintained in May and June.

Equity markets are opening stronger this morning following the better than expected earnings from Intel and Yahoo after the  close last night. This helped the Nikkei close up over 3% and we are seen this sentiment filter through to Europe.

This morning on the economic front we have UK Average Earnings and Unemployment. This is followed by Euro-Zone CPI. At 1.30 pm the US releases its latest Building Permits and Housing Starts Index followed at 2.15 pm by Industrial Production. Fed Chair Yellen is due to address the Economic Club in New York and to cap off a really busy day the Fed will release  its Beige Book at 7 pm.

June S&P 500

The S&P had yet another wild trading session yesterday. The market was up strongly in the morning only to be hit hard on Ukrainian tensions before again finding support at the key 1810 level and is now an incredible 40 handles higher this morning. The rally from the 1810 level generated another Key Day Reversal but this time it was to the upside. After I posted yesterday morning the S&P traded up to my 1831 sell level and after a nice sell-off I was able to cover this position at 1820. The market then traded down to my 1810 support level, which I outlined yesterday morning, before it rallied to close at 1838.50. The market is a lot higher this morning after Yahoo rose 10% in after hours trading following their earnings release. This up and down volatility certainly feels to me that the market is about to change direction but on the other hand I have to respect the fact that we have  had a significant Key Day Reversal to the upside in yesterday’s trading session. This morning I am a small seller from 1850/1854 with a 1859 stop. I will also be a buyer on any dip back to 1835/1840 with a 1828 stop which is just below the key 1830 support level. The S&P really needs to break and close below 1810 for me to turn bearish as the market has found support at this level three times already this week.

Euro/USD

Just after I posted yesterday morning I was unfortunately stopped out of my 1.3840 long position near the lows of the day at 1.3790. Last evening when the S&P spiked higher I went long the Euro again at 1.3810. I am still long and I will leave a 1.3775 stop on this position which is just below yesterday’s low.

US Dollar Index

No change as I am still a buyer on any dip to 79.20/79.50 with a 78.75 stop.

June DAX

The volatility in the Dax is just incredible as the market seems to have a violent reaction to every piece of news out of the Ukraine, and yesterday was no exception.