There is a clear trend developing in global equity markets where expectations for monetary stimulus in Europe are driving stocks higher whilst the prospect, or possibility, of Fed tightening combined with worries over corporate earnings are depressing US share values. Every North American market has seen year-to-date losses whilst France and Germany are both up over 4% since January 1st.
With Oil closing down another 4% yesterday, the challenge for investors is to decide whether the initial negative impact on inflation is more important than the second-round impact on consumption and activity in terms of monetary policy making. It is a tough call, but price action in fixed income markets suggests the inflation impact may be more important to those at the top of the Fed who set the terms of its internal debate.
In foreign exchange, the US Dollar has found its mojo once more with the Dollar Index back on the 93 big figure and within a quarter of a percent of its 10 year high reached last Friday. While the IMF’s changes to its economic forecasts should have surprised no-one, the last 24 hours have seen a swathe of media reports highlighting divergent performance across the major economies with the US revised upwards, and the metaphorical red pen taken to China. Japan and Europe.
Overnight President Obama gave his State of the Union address. In his speech he declared that the US has healed and that the nation must now begin work to close the gap between the well-off and the wanting.
The Japanese Yen strengthened earlier this morning as the Bank of Japan kept its asset purchases steady at its latest Monetary Policy Meeting, with the Yen now back at 117.50 from 118.70 yesterday. The rising Yen saw a 0.5% fall in the Nikkei.
This morning on the economic front we have UK Average Earnings and the Bank of England Minutes from its last meeting in December, at 9.30 am. Then at 1.30 pm we have US Building Permits and Housing Starts.
March S&P 500
The S&P plan worked out well yesterday on what was another wild trading session ahead of tomorrow’s crucial ECB Meeting. The S&P having been up strongly in the morning reversed course soon after the US markets opened, with the market eventually falling to my 2003 buy level. It then made a low at 1998 before having a nice rally into the close which enabled me to cover this position at 2012 and I am now flat. So far in 2015 the price action is not good and this theme is likely to continue especially since we have had 6 Hindenburg Omen’s already this month. However I cannot see the market selling off too aggressively ahead of tomorrow’s ECB Meeting and today I will raise my buy level slightly to 1999/2005 with a 1995 stop which is just below yesterday’s low. I will leave my sell level the same at 2028/2034 with a 2038 stop.
Euro/USD
No change as I am still a small buyer from 1.1490/1.1530 with the same 1.1475 stop. Sentiment is so extreme that if the ECB disappoints tomorrow we are going to have a massive rally in the Euro.
US Dollar Index
No change as I am still short at 92.80 with the same 93.40 stop which came close to being hit overnight. Thankfully the Dollar is lower now and for this reason I will continue to leave my stop at the same level.
March DAX
The Dax is being hit this morning as the European Markets are being weighed down by another 1.75% fall in the Swiss Equity market. I am still flat as none of my parameters were hit yesterday. Given the weaker sentiment, I will lower my buy level to 10130/10170 with a 10095 stop. I do not want to be short the Dax at this time especially ahead of tomorrow’s key ECB QE announcement.
March FTSE
Unfortunately after I posted yesterday morning the FTSE just missed my 6520 buy level before having a nice rally and I am still flat. The price action continues to be positive for the FTSE and today I will raise my buy level slightly to 6510/6540 with a 6475 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow plan also worked well yesterday as when the US markets started to sell off aggressively in the afternoon, it traded lower to my 17400 buy level. Subsequently when the Dow reversed higher I was able to cover this position at 17480 and I am now flat. Today I will again be a small buyer on any dip to 17370/17420 with a 17330 stop. I still do not want to be short the market at this time.
March BUND
No change as I am still short from last Monday at 157.85 with the same 158.20 stop.
Gold Rolling Contract
Given how overextended Gold is trading right now I am only going to raise my buy level slightly to 1269/1276 with a 1259 stop.
Silver Rolling Contract
Silver has finally started to push higher however it is trading at the top of its Bollinger Band and Williams Index and with the break of 18.20 overnight, I have now raised my stop to 17.90 on my long 16.30 position from earlier this month. If Silver breaks 18.50 I will raise my stop further to 18.30.
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