When I wrote the Update early yesterday morning, US Treasury Bonds were rallying hard, equities were falling fast and USD/JPY was leading the US Dollar lower against all major currencies. Fast Forward 24 hours, US Treasury Yields are higher and the Euro/USD has led a reversal of yesterday’s US Dollar weakness whilst the S&P 500 closed nearly 2.0% higher. Much of yesterday’s price action is directly attributed to a Reuters ‘source story’ suggesting that the ECB is considering the purchase of Corporate Bonds to bolster its balance sheet expansion ambitions and could discuss this at the Governing Council Meeting on December 4. A subsequent denial in the FT from other ECB ‘Sources’ sounded less than convincing, saying only that the ECB has not yet put the issue on the December Meeting Agenda.
The story sent the Euro/USD rate down over 50 points to 1.2750. Italian Bond Yields fell 10 bps helping European Equities to nice gains by the end of the trading session. Also helping market sentiment and the US Dollar late in the session was US Existing Home Sales which rose 2.5% versus 1.0% expected. Meanwhile the slippage in the Euro/USD rate was exacerbated by comments from German Finance Minister Schaeuble that a lower Euro exchange rate helps the German economy while at the same time saying that Germany’s balanced budget goal cannot be endangered.
This morning on the economic front we have the Bank of England Minutes at 9.30 am. The only other data of note due is US CPI at 1.30 pm.
December S&P 500
As I was travelling early yesterday morning I had written my commentary very early with the S&P trading very near the lows of the day before the market mounted this massive 55 handle rally on the Reuters story saying that the ECB was considering buying Corporate Bonds. I must say that Dragi has done an incredible job as every time the markets are in trouble we get some sort of positive leak that so far has led to very little action from the ECB since he became President.
Just after I wrote my Update yesterday morning and before I had posted, the S&P accelerated lower which enabled me to cover my short 1902 position at 1888. Then the market started to spike higher and after it made a high of 1916 I went short using my 5 handle rule at 1911 only to be stopped out of this position at 1917 and I am now flat. I must say I am astonished by the price action over the last 9 days as the markets are now trading on emotion. Incredibly the S&P managed to close over key support at 1930 and now the 1925/1930 area should act as good support going forward. Today I will be a small buyer from 1926/1931 with a 1919 stop. The next key resistance is from 1945/1950 and I will be a small seller here with a tight 1954 stop.
Euro/USD
Just as I posted the Euro was accelerating lower and was trading at my 1.2750 buy level before having a nice rally before lunch which enabled me to cover this position at 1.2780 and I am now flat. Today I will again be a small buyer on any further dip to 1.2670/1.2700 with a 1.2645 stop. My only interest in selling the Euro is on a rally to 1.2850/1.2900 with a 1.2930 stop.
US Dollar Index
The Dollar Index plan worked well as shortly after I posted the Dollar was trading at my 85.00 buy level before having a nice rally into the New York close which enabled me to cover this position at 85.40 and I am now flat. Today I will again be a small buyer on any dip to 84.80/85.10 with a 84.55 stop. I still do not want to be short the Dollar at this time.
December DAX
When I was creating my trading plan yesterday morning the Dax was at my 8730 buy level but by the time I posted it was accelerating to the upside and I am still flat. The Dax did not close officially above my 8920 trigger level to go long but traded through this level as the evening wore on. I am still flat and I am going to stay flat as I want to see if we can close over 8920 this evening. One other reason for me been cautious at these levels is the fact that the Dax has rallied over 600 points since last Thursday’s low at 8350.
December FTSE
The FTSE also missed my 6220 buy level early yesterday morning before following the other major indices higher and I am still flat. Today I will be a small seller from 6420/6450 with a 6480 stop. Given the extent of the rally over the last three days I do not want to be long the market at this time.
Dow Rolling Contract
Having been stopped out of my short S&P position early in the New York trading session I spent the rest of the day observing the market before finally going short the Dow into the close at 16600. I am still short and I will leave my stop the same at 16680. The Dow continues to under-perform the other major indices but is still 800 points higher than last Wednesday’s intra-day low. Given the extent of the recent rally I would expect the market to take some profit before deciding on its next course of action.
December BUND
I am still flat and today given the equity rally over the last few days I will lower my buy level to 149.70/150.10 with a tight 149.55 stop. The 150.00 level is key for the Bund as a break and close below here opens up the possibility of a decent move to the downside hence my tight stop on any long position.
Gold Rolling Contract
Gold is trying to break and close over the key 1240/1250 resistance level with the market so far failing to do so. A break and close over 1250 will be short term bullish but I am nervous to put on a new long position here preferring to observe and see which way the market breaks before putting on my next trade.
Silver Rolling Contract
Silver is also trying to break and close over its key 17.50 short term resistance. I am still long at 17.10 and I will leave my stop the same at 16.60.
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