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So finally we have arrived at D-Day with the Fed in the midst of its two day meeting and will report its deliberations at 7 pm tonight. This is an historic day as it is Ben Bernanke’s last meeting as Chairman and following the FOMC decision he will give his last press conference. Yesterday’s and likely today’s market action reflects this waiting, with most markets in relatively tight ranges or position squaring. US equities ended the day mixed to lower whilst European equities closed weaker but equity markets are rebounding this morning ahead of tonight’s announcement. US Treasury Yields were lower along with Gold and Oil whilst the US Dollar which rallied through much of the day is back on the defensive this morning.
Yesterday showed more improvement for the US Economy following the latest data releases yesterday. The US Current Account Deficit came in better than expected whilst core inflation was reported steady at 1.7% and the NAHB Housing Index rose to its best level since 2005. The rise in the US Housing market is starting to finally push up inflation in the form of owner’s equivalent rent so this bears monitoring as the Fed watches for rising inflation.
This morning on the economic front we have the Bank of England Minutes from its last meeting. This is followed by the German IFO Survey and this should be strong given the ZEW [which reported yesterday] saw the improvement in both the current situation and future expectations. At 1.30 pm we have US Housing Starts and Building Permits ahead of the tapering decision from the Fed at 7 pm.
March S&P 500
The market traded in a fairly quiet range yesterday in anticipation of tonight’s announcement. I was very unlucky with my buy level as the S&P traded down to a low of 1776.25 just missing my 1776 buy level before trading higher and I am still flat. As most members know at this stage, the only two times of the month that I have no position going into a major announcement are the Non Farm Payrolls and the FOMC Meeting as the risk is too great either way. If The Fed decide to taper and the market sells off I will be a reasonable buyer on any dip to 1756/1762 with a wider 1749 stop. If on the other hand, the Fed do not taper I will be a seller on any rally to 1792/1798 with a 1802 stop. I cannot give any narrower parameters than those outlined for tonight as the risks on either side of the ledge are much bigger than normal.
Euro/USD
No change as I still believe the US Dollar is trying to put in a bottom in the market. I am still long the March US Dollar Index at 79.90 and I will leave my stop the same at a break-even. If I am stopped out I will be a more aggressive buyer in front of 79.60 with the same 79.25 stop. If the US Dollar weakens after tonight’s announcement I will still be a seller of the Euro on any rally to 1.3825/1.3850 with a 1.3875 stop. My only interest in buying the Euro is on a drop to 1.3620/1.3650 in small size with a 1.3595 stop.
December DAX
The Dax worked well yesterday as shortly after I posted we were trading at my 9120 buy level before having a nice rally and I was able to cover this position at 9155 and I am now flat. The key for the Dax going forward is still the 8980/9000 level which we have tested at least 3 times over the past 10 days before having a strong rally out of this support zone each time. Given the anticipated volatility later on this evening with the Fed decision I will only be a buyer on any dip to 9000/9030 with a 8970 stop. My only interest in selling the Dax is on a rally to 9220/9250 with a 9270 stop.
December FTSE
The FTSE plan also worked well yesterday as it had a nice rally enabling me to cover my 6485 long position taken yesterday morning at 6515 and I am now flat. As I have mentioned over the last few days the key for the FTSE is the 6475 level as a break and close below here will be bearish. The FTSE is still oversold and I still anticipate that we will get something of a year end rally. Today I will be a small buyer on any dip to 6460/6480 with a 6450 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow worked very well yesterday as shortly after I posted the market traded down to my 15840 buy level. The Dow is back above 15900 this morning and I have decided to cover my position here at this price as I want to be flat ahead of tonight’s Fed decision. If after the announcement tonight I will be a buyer on any dip to 15770/15800 with a 15740 stop. I will also be a small seller on any rally to 16010/16050 with a wider 16110 stop which is just above the thirteen year trendline that I have mentioned over the last three weeks.
March BUND
The Bund just missed my 140.10 buy level with a 140.13 low before it traded higher and I am still flat. Today, given what lies ahead tonight, I will lower my buy level to 139.30/139.60 with a 139.05 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
The Daily Sentiment Index reading for Gold continues near all time lows as most people are literally shying away from the precious metal. I still believe we are near some sort of real bottom for Gold and the big question is are we going to test last June’s low at 1180 first before Gold rallies. If Gold breaks the recent high of 1268 I think Gold will have put in this bottom that I have been looking for at last weeks 1212 low. Today I will be a small buyer on any dip 1215/1225 with a 1208 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1180/1195 with a 1175 stop.
Silver Rolling Contract
Just like Gold, the Daily Sentiment Reading for Silver continues near all time lows. Shortly after I posted yesterday Silver traded down to my 19.80 buy level. I am still long and I will leave a 19.40 stop on this position. If it can break and close over the recent 20.52 high it will very bullish and should see Silver traded a lot higher. Remember, Silver is still trading down over 60% from its May 2011 high.
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