China’s decision to reduce the Required Reserve Ratio on major banks by 50bps set the tone in yesterday’s Asian trading session and it helped the market look through a set of soft PMI throughout the region. Against this backdrop, European equities opened firmer and then following a better set of US data releases provided an additional boost to risk appetite, pushing equity Indices higher on both sides of the Atlantic. This theme has continued overnight with the Nikkei and Shanghai Indices closing up 4.11% and 3.65% respectively. However I would note caution here as the McClellan Oscillator closed at a very overbought +286.
To mark my 1000th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Daily Commentary which includes ¼ updated emails throughout the trading day. This offer is open to both existing and new members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anybody following my Platinum Service it made 70 points yesterday having made 2265 points in February and 3365 points for January. Since I started this service last June it has made over 20,500 points.
Major European equity Indices ended the day up between 0.9% and 2.3% while US markets closed between 2.15% and 3.0% led by a huge rally in bank stocks. While US Auto Sales for February and Construction Spending for January beat expectations, the big data surprise yesterday was the stronger than expected rebound in the ISM Manufacturing Survey. The February reading saw a bigger rebound to 49.5 versus 48.5 expected and although it remains in contractionary mode, this was a second consecutive monthly gain and it has certainly alleviated fears of a manufacturing recession. That being said, I would note that the improvement in the survey has occurred in an environment of a softer US Dollar and stable to higher Oil prices. A reversal on either or both could well reignite downward pressure on the troubled sector.
In Currencies, the ‘risk on’ sentiment has relegated the Yen to the bottom of the leader board with the currency down 1.2% against the US Dollar over the past 24 hours. The improvement in sentiment has also provided a big lift to commodity prices and as a result commodity related currencies have outperformed. The Canadian Dollar is at the top of the leader board closing up 1.0% at 1.3450 which is up nearly 10% off its recent low in late January.
Looking at Commodities, Brent and WTI oil closed up 0.7% and 2.1% respectively, while Iron ore plunged 3.7% and Gold closed unchanged having risen earlier in the day.
Not surprisingly, the ‘risk on’ mood has pushed Global Bond Yields higher. 10 Year Treasuries are back trading over 1.82% for the first time since February 18 while in Europe 10 Year Bunds ended the day +4bps at 0.15%.
Looking at other data releases, European Manufacturing PMI’s printed more or less in line with expectations, but the fall in Euro-Zone Unemployment Rate to 10.3% from 10.4% was a welcomed surprise.
Ahead of the ECB Meeting next week, in a letter to MEP Jonas Fernandez published late yesterday, ECB President Dragi increased the expectation of a significant stimulus package. In the letter Dragi noted that the ECB’s review of its stimulus measures ‘has to be seen against the background of increased downside risks to the earlier outlook’ and ‘in this environment, Euro area inflation dynamics continue to be weaker than expected’.
This morning on the economic front we have UK Markit/CIPS Construction PMI at 9.30 am. This is followed at 12.00 pm by the MBA Mortgage Applications. At 1.15 pm we have the ADP Employment Change and this number will be closely watched for any hints ahead of Friday’s Non Farm Payrolls. Next at 2.45 pm we have the New York ISM. Finally at 7.00 pm the Fed will release its Beige Book.
Earlier at 3.00 pm the Fed’s Williams will speak in California at 3.00 pm.
March S&P 500
Having traded as low as 1921 early yesterday morning the S&P exploded to the upside as the market rallied to a 1984 high print overnight on big volume as new monies were put to work as expected for the start of a new month. Thankfully we had no sell levels in any of our Index contracts yesterday as I was very suspicious that this rally would occur but even I was surprised by the extent of the move as one short position after another got squeezed. As I mentioned in my opening commentary above the McClellan Oscillator closed at a very overbought +286 reading making it easier to look to set up a counter trade short position. The S&P is now trading 180 Handles off its mid-February low print again emphasising how difficult it is to short the market for a sustained period of time. The first of the ‘Open Gaps’ from early January comes in at 1994/2010 and I would expect the market to having difficulty in breaking this gap initially especially with both the Bollinger Band and Williams Index trading at the top of their bands coupled with the very high MO reading. For these reasons I will look to short the S&P on any further rally to 1885/1895 with a 2002 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller in front of 2010 with a 2016 stop. Despite the positive price action yesterday my only interest in buying the S&P is on a dip lower to 1958/1965 with a 1953 stop.
EUR/USD
No change as I am still long at 1.0865 from Monday with the same 1.0815 stop.
March Dollar Index
The Dollar traded higher to my 98.60 sell level before having a brief sell-off which enabled me to cover this position at 98.35 as emailed earlier to my Platinum Members and I am now flat. Today I will again loom to sell the Dollar on any rally higher to 98.75/99.05 with a 99.30 stop.
March DAX
Thankfully we had no sell levels in the DAX which has now rallied over 500 points this week on what is a very difficult market to trade given the choppiness of the market. I am annoyed with myself for not being long the market as I fancied this market to rally especially with the weaker Euro and the fact that we had broken the key 9200/9300 major resistance level which should act as good support on any subsequent sell-off going forward. The DAX has major resistance at the 10100/10200 area following the two major Key Day Reversals off this area in early January. My only interest in selling the market is on a rally higher to 10070/10150 with a wider 10220 stop. I will also look to buy the market on any dip lower to 9670/9740 with a tight 9625 stop.
March FTSE
Missing my 5990 buy level early yesterday morning by just 12 points has proved to be very costly with the market nearly 200 points higher this morning. I am still flat and today I will raise my buy level to 6090/6120 with a 6065 stop. I will also look to sell the FTSE on any further rise to 6230/6260 with a 6290 stop.
Dow Rolling Contract
Incredibly the Dow is now trading nearly 500 points higher from its early yesterday morning low at 10448 on huge volume. I am still flat the Dow and today I will use any further rally to 16940/17010 to go short with a 17070 stop especially with the MO getting near a very overbought condition. I do not want to buy the market today despite the hugely positive price action.
March BUND
Today I will lower my sell level to 165.80/166.40 with a 160.75 stop which is just above Monday’s Contract high print. I will also look to buy the Bund on any dip lower to 164.35/164.65 with a 163.95 stop.
Gold Rolling Contract.
Overnight Gold traded lower to my 1225 buy level with a 1224.6 low print before rallying. As I am already long both Silver and the Euro I emailed my Platinum Members earlier this morning to exit this position at 1229.50 and I am now flat. Today my only interest in buying Gold is on a further dip lower to 1210/1217 with a tight 1205 stop which is just below last week’s low print.
Silver Rolling Contract.
Unfortunately Silver just missed my 15.10 T/P level yesterday with a 15.08 high and I am still long at 14.70 with the same 14.25 stop.
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