The FOMC Meeting got underway yesterday afternoon and concludes with this evening’s rate announcement at 6.00 pm. The question is whether the accompanying market backdrop is a direct reflection of the nervousness over the outcome, or rather may actually feed into it, is hard to say. Attracting some significant press attention this morning are warnings from the head of the IMF and one of the World’s largest hedge fund managers, of potentially dire consequences from the commencement of Fed policy normalisation.
IMF managing director Christine Lagarde is out claiming US rate increases could trigger instability in Emerging Markets, leading to a re-run of the Fed-induced taper tantrum of 2013. And Ray Dalio, founder of the $165bn Bridgewater Associates Hedge Fund Group, has been telling clients that the Fed risks causing a 1937 style stock market slump when it finally moves to raise interest rates.
The S&P 500 and the Dow both closed lower by 0.3% and 0.7% respectively, while the German DAX gave back most of Monday’s heady 2.24% gains to close down 1.54%. US Treasury Yields are lower again with the 10 year falling 2bps to stand at 2.05% this morning. The Euro and Dollar Index are unchanged.
A very weak US Housing Starts outcome which came in at -17% versus -2.4% expected, has largely been dismissed as weather related, which is strange when Starts fell the most in Western States that have had some of the warmest February weather on record. Building Permits rose by 3%. The German ZEW Survey for Current Conditions rose by more than expected at 55.1 from 45.1 last month, but Expectations came in weaker than expected at 54.8 from 53.0.
Sterling fell hard yesterday after it gave back a chunk of its recent outperformance, for reasons not readily apparent, while the Norwegian Kroner has been hit yet again by the latest fall in Oil prices. WTI closed at a new six year low at $42.5 after further stock build up at the Cushing price point.
This morning on the economic front we have UK Unemployment and Average Earnings at 9.30 am. At the same time the Bank of England will release its Minutes from its last Meeting. This is followed at 10.00 am by the Euro-Zone Trade Balance. All eyes will then turn their attention to the US when the FOMC will release its latest Statement and Yellen press conference. This will be Ms Yellen’s first press conference of 2015 as we will have a new set of FOMC Member forecasts for the economy as well as the Fed Funds Rate and the key word for the FOMC Statement is whether the word ‘patient’ stays or is removed.
March S&P 500
The S&P plan worked very well as the market traded lower to my buy level after the US released its latest awful Housing Starts Report. After I went long at 2067, the S&P had a strong rally into the close which enabled me to cover this position at 2074 and I am now flat. I am going to stay flat until we get the FOMC out of the way at 6.00 pm. If the market trades lower following the Yellen press conference I will be a buyer from 2060/2066 with a 2056 stop as I want to be long the market ahead of Friday’s Expiration. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of Monday’s ‘Open Gap’ at 2049 with a 2044 stop. I do not want to be short the S&P today.
EUR/USD
No change as I am still a small buyer on any dip lower to 1.0520/1.0565 with the same 1.0495 stop. If the Fed kicks for touch again this evening the Dollar should weaken, and for this reason I do not want to be short the Euro at this time.
US Dollar Index
No change as I am still a seller on any rally to 100.30/100.70 with the same 101.10 stop as I do not want to be long the Dollar at this time especially since the Dollar is so overbought and at extreme sentiment readings.
March DAX
The DAX plan also worked out very well yesterday as the market continued to sell-off after I posted yesterday morning with the market eventually hitting my 11970 buy level before having a nice rally which enabled me to cover this position at 12030 and I am now flat. Today I will lower my buy level to 11870/11920 with an 11830 stop. Remember the key level to watch for the bulls is at 11800 as a break and close below here will see a temporary high in the market. I will also be a small seller on any rally higher to 12160/12210 with a 12240 stop. If I am taken short and subsequently stopped out of this trade I will be a more aggressive seller in front of 12400 with a 12470 stop.
March FTSE
Shortly after I posted yesterday morning the FTSE traded lower to my 6800 buy level and after a nice rally I was able to cover this position at 6840 and I am now flat. As I mentioned yesterday a break and close over 6800 will be short-term bullish and today I will again be a small buyer on any dip lower to 6800/6820 with a 6785 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The idea of not to be short the stock market ahead of an FOMC Meeting again paid dividends yesterday. Shortly after the awful Housing Starts were reported the Dow traded lower to my 17800 buy level before having a nice rally into the close which enabled me to cover this position at 17870 and I am now flat. Amazingly the market generated another Hindenburg Omen yesterday which is the third consecutive one this week. There are now three separate official Hindenburg Omen potential stock market crash signals all on the clock at the same time, the first came in December, the second came in January and now the third is effective from March 16. This is highly unusual and means the stock market sits in an extremely unhealthy condition at this time.
Today I will be a small seller on any further rally to 17970/18020 with a 18070 stop. I do not want to be long the Dow at this time.
June BUND
No change as I am still a small seller on any rally higher to 158.15/158.40 with the same 158.60 stop.
Gold Rolling Contract
My long 1152 Gold position worked out well yesterday as shortly before lunch Gold rallied which enabled me to cover this position at 1159 and I am now flat. The key level to watch for Gold is at 1131 as a break and close below here will again be short-term bearish. Today I will be a small buyer in front of 1134 with a tight 1119 stop.
Silver Rolling Contract
I am still long from early March at 15.75 with the same 14.90 stop. If I am stopped out of this trade I will be a more aggressive buyer in front of January’s low at 14.49 with a 13.95 stop.
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