More poor earnings reports from US and European companies really weighed on stock markets yesterday with markets having their worst day since June. This weakness, reflected in a rise in the VIX of more than 20% in three days, looks to be both a micro and macro story.The micro element is the incoming earnings reports and revenue disappointments, the latest being from DuPont and 3M. In addition, Dow Chemical has just announced it may shed 5% of its work force. The macro piece is the heightened policy and economic uncertainty as we hurtle towards the November 6th Elections in the US.
The news from Europe is not much better with Spanish GDP falling by 0.4% to -1.6%, annualized, and French Business Consumer Confidence falling from 90 to 85 arousing fears that Q3 might now mark a low point for Euro-Zone growth. Spanish bond yields rose 13 bps on the weak GDP news. As I write this commentary Equity markets are a little stronger this morning on the back of the better than expected Chinese Manufacturing No’s.
In terms of news, this morning we have the PMIs for Europe and the German IFO survey followed in the US by New Home Sales and later the FOMC meeting.
Dec S&P 500
The S&P opened down and, for the first time that I can remember in a long time, has left a huge Gap to the down side. Unfortunately the market broke through the 1420 level very easily and never came close to this level again. I was stopped out of my 1419 long at 1414 and I never got a chance to go short as the S&P then traded down to a 1402 low. The 1420 level will now be strong resistance and even though we are oversold I will be a seller from 1415/1419 with a 1423 stop. As today is the Fed meeting I would expect some sort of a rally to develop ahead of the announcement and I will also look to go long from 1401/1405 with a 1398 stop. Given the volatility I am trading in smaller size.
Euro/USD
I am very surprised how well the Euro is trading given how weak the Equity markets are. If the Euro does break down it has huge support between 1.2770 and 1.2870 where all the main moving averages are. I was stopped out of my 1.2990 long at 1.2975 for a small loss and I am now flat. I am only interested in buying the Euro if we dip down to the 1.2890/1.2920 area otherwise I am going to do nothing and watch how we trade for the next 24 hours. If I happen to be taken long I will leave a stop at 1.2850.
Dec BUND
I have bought the Bund this morning at 140.30 and I will leave a stop at 139.95. The Bund has under performed and I expect a rally to develop given how weak the Equity markets are. I will look to take profit from 1.4075/141.00.
Dec FTSE
I was stopped out of my 5795 long position at 5770 which was near the low of the day before the FTSE rallied back above 5800. This morning ahead of the FOMC I will be a buyer on any dip to 5740/5760 with a 5725 stop.
Gold – Rolling Spot
I am patiently waiting for the market to trade down to my 1690/1695 buy level. If I am taken long I will lower my stop to 1678.
Dec DAX
The Dax also broke its major support line at 7200. This level will now be strong resistance and I will be a seller from 7200/7220 with a tight 7230 stop.
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