It’s a bit of pick and mix for explanations regarding market moves in the last 24 hours. There has been no top tier economic data, no new speeches, or surprises. But, Equities tumbled, Commodities are soft, Bond Yields are lower and the USD has regained its strength. Market measures of risk aversion and volatility are higher and there is a general sense of unease pervading the moves.
For anybody following my new Platinum Service it lost 85 points yesterday but is still ahead by 2350 points for September. The previous three months saw gains of 2195, 1810 and 3045 points respectively.
A Reuters poll shows that 41 of 80 economists believe that the Fed should have hiked last week (to be fair, consistent with the pre-FOMC polls). This is along the same theme as a number of reports in the press, that the ensuing uncertainty is creating this market unease, and particularly the sell-off in Emerging Market currencies. A majority believe that the Fed will hike this year, but we are just now left unable to move on from the “when” debate and “what” will happen to markets when they do.
There is also pressure on Commodities and thus commodity producers (Brazil’s real is the worst performing currency and commodity producer equities are under pressure) given the uncertainty about global growth and what is happening in China. That comes with no new information from China yet this week and which indeed has been relative stable. However that may change this morning as China reported its latest Flash PMI overnight which came in weaker than expected at just a 47 print. The AUD has been a little softer overnight, but if this theme catches on, it could be expected to underperform.
Another factor given for the equity market weakness is the revelations from VW that their emissions systems provided a misleading reading. This has sparked investigations in many jurisdictions as it is said to affect 11 million vehicles globally. It is being touted as having the potential to weigh on German GDP as sales dry up. But to apply that to broader markets is such a long bow that it gives us a sense that markets are generally spooked. However the DAX did fall 400 points or 4% on this news and is now back within touching distance of its August 24 lows at 9350.
In the UK, Public Sector Net Borrowing was higher than expected, due to lower income tax receipts, and lead to the highest August borrowing for three years. Combine this news with the UK’s CBI Industrial Trend Orders which were particularly weak, and GBP was the underperforming G10 currency for the day.
This morning on the economic front we have German and Euro-Zone Services /Manufacturing PMI at 8.30 am and 9.00 am respectively. At 9.30 am we have the UK BBA Loans for House Purchase. This followed at 12.00 pm by US MBA Mortgage Applications. At 2.00 pm the ECB President has his Quarterly hearing in Brussels. Finally we have US Manufacturing PMI at 2.45 pm.
The Fed speak fest continues, but after the deluge post the FOMC meeting, some fatigue can be expected. This is particularly true given it is Lockhart again at 5.30 pm. We will wait for Yellen to perhaps provide something else on Friday; although if she counters all the hawkish talk this week, there will be even more confusion than there has already been from her fellow Members.
December S&P 500
The S&P plan finally worked out overnight as the S&P traded lower to my 1913 Buy level on the release of the weaker than expected Chinese Flash PMI before having a nice rally which enabled me to cover this position this morning at my 1923 T/P level as outlined earlier to my Platinum Members and I am now flat. The move lower has more or less covered the outstanding 14 Handle ‘open Gap’ from the NFP Trading Day on September 4. However yesterday’s huge 50 Handle sell-off has left a large 29 Handle Gap from Monday’s close at 1964 to yesterday’s rebound high at 1936 and in my opinion this Gap will not be left unfilled without been at least partially if not fully filled. Amazingly despite the 100 Handle sell-off since last Thursday’s FOMC Statement the McClellan Oscillator still closed last night with a positive reading of +8. Today I will again be a small buyer on any further dip lower to 1907/1915 with a wider 1899 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 1875 with an 1865 stop. Given the huge move lower that we have witnessed over the past few days plus the fact that we have such a large ‘open Gap’ to be filled I do not want to be short the S&P at this time.
EUR/USD
Shortly after I posted yesterday morning the Euro started to trade lower with the market eventually hitting my 1.1125 buy level. Finally this morning this trade is starting to work. I am still long and today I will raise my stop on this position to 1.1095 which is just below the overnight low print. If I am stopped out of this trade I will be a more aggressive buyer in front of 1.1050 with a 1.1025 stop.
December Dollar Index
Shortly after I posted yesterday morning I was stopped out of my 96.00 short position for a small loss at 96.30 and I am now flat. I still believe the Dollar has to start to weaken as the ramifications for an increasing strong Dollar from here are huge especially given how weak the Emerging Market Currencies are trading as these are currently breaking multi year/decade lows. For these reasons I will again look to go short on any further rally higher to 96.60/96.90 with a 97.20 stop.
December DAX
The only good part of my buy level in the DAX yesterday was the fact the market was getting slammed just as I posted which meant that the DAX was trading at the bottom of my buy level at 9830 before very quickly stopping me out of this position for a small loss given the circumstance at 9780 and I am now flat. The DAX has now lost nearly 9% since last Thursday Evening and obviously this move has not been helped by the VW news which has seen their shares hammered for over 25%. Today the DAX is trading outside its Daily Bollinger Band but admittedly this is a narrow band and therefore does not carry as much weight in terms of trying to find a bottom. Interestingly the Williams Index has given a small buy signal and for this reason I have bought the DAX here at 9570 in small size with a 9510 stop.
December FTSE
Just like the DAX above the FTSE was selling off aggressively as soon a sI posted yesterday morning with the market trading at my 6000 buy level before very quickly stopping me out of this trade at 5955 and I am now flat. The FTSE is also very oversold and has been the lead move to the downside all year. Given how oversold this market is trading I will be a buyer on any further dip to 5880/5920 with a 5850 stop.
Dow Rolling Contract
The Dow has now fallen nearly 900 points since its post FOMC Statement rally but as I mentioned above it is incredible to think that the McClellan Oscillator still closed in positive territory. I am still flat the Dow and today I will be a small buyer on any dip lower to 16040/16110 with a 15980 stop. Given the extent of the move lower I do not want to be short the market at this time.
December BUND
The BUND plan did not work out yesterday as the BUND traded higher all day on the back of the weaker Equity markets. Eventually the BUND hit my 155.75 sell level before stopping me out of this position at 156.05. I still believe the upside for the BUND is limited as a lot of Pension and Hedge Funds are still trapped above the market. For this reason I have gone short the BUND again here at 155.98. I will leave a 156.30 stop on this position which is just above this morning’s high print.
Gold Rolling Contract
Gold traded lower to my 1125 buy level yesterday afternoon. I am still long and I will leave my stop the same at 1115.
Silver Rolling Contract
Unfortunately I was stopped out of my long 15.10 long position at 14.80 and I am now flat. Today I will again be a buyer on any dip lower to 14.40/14.70 with a 14.20 stop.
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