In the world of currencies and interest rates it is the further slide in Commodity Currencies that stands out over the last 24 hours with the New Zealand Dollar being the weakest, followed by the Australian and Canadian Dollar. Assisting the move lower in high-yielding currencies has been the move up in market volatility. The VIX Index rose to its highest level since early August as markets noted the step up in American led military action against ISIS in the Middle East. Equity markets suffered, helped by US moves to block tax inversion deals which weighed heavily on the Healthcare sector in particular.
In Europe, the flash estimates of September PMI’s made for ugly reading. The headline Euro-Zone Manufacturing Index slipped to 50.5 from 50.7 and the Headline Services Index also edged lower from 53.1 to 52.8. France continues to underperform Germany with the former’s Manufacturing Index in ‘contractionary’ territory for the fifth consecutive month. This led to a 2% fall in the French stock market.
Of some relevance here, Bloomberg reports that the European Court of Justice will review oral arguments in a German challenge to the ECB’s ‘Outright Monetary Transactions’ plan which was launched back in September 2012. This review will take place on October 14. If the ECJ were to deem the OMT illegal it would surely quash expectations that the ECB might yet go down the path of Soverign Bond buying in order to facilitate its planned balance sheet expansion by the desired €1 trillion.
Today is a very light day for economic data. This morning at 9.00 am we have the very important German IFO Survey. This is followed at 3 pm by US New Home Sales.
December S&P 500
The sell-off in the stock market continued yesterday with the S&P losing another 0.6% and is now down 45 handles from last Friday’s high, coming on the back of the confirmed Hindenburg Omen. The Russell 2000 Index continued to be hit hard again and the ‘Death Cross’ (which is where the its 50 Day Moving Average drops below its 200 Day Moving Average) that I mentioned in yesterday’s commentary finally formed by yesterday’s close. When this technical pattern occurs it usually results in a significant sell-off. The market is now heading towards oversold again with the McClellan Oscillator posting a reading of -226.
The S&P plan worked well yesterday as the market traded up to my 1988 sell level and after a nice sell-off I was able to cover this position at 1978 and I am now flat. Given how oversold the McClellan Oscillator is getting I will be a small buyer on any further down move to 1959/1963 with a 1954 stop. I will also be a seller on any rally back to 1983/1988 with a 1992 stop which is just above yesterday’s high.
Euro/USD
The Euro held in very well yesterday considering how weak the Euro-Zone PMI’s readings came in. After I posted the Euro had a nice rally which enabled me to cover my long 1.2855 position at 1.2890. The Euro subsequently started to sell off after the US markets opened and this morning I have bought the Euro again at 1.2850. I will leave the same 1.2810 stop on this position which is just below last Monday’s low.
US Dollar Index
No change as I am still short at 84.80 with the same 85.20 stop.
December DAX
The Dax, having opened strongly this morning is now starting to sell-off again. Yesterday it finally followed the S&P lower with the market eventually trading down to my 9580 buy level. I have covered this position this morning at 9610 and I am now flat. As I mentioned yesterday the real support for the Dax comes in at 9480/9520 and today I will be a buyer in this region with a 9435 stop. Given the fact that QE has started in Europe I do not want to be short the Dax at this time.
December FTSE
The FTSE had another bad day yesterday with the market losing 2%. It is now down over 250 points since the Scottish Referendum result on Friday. This morning the market is very oversold as it trades at the bottom of its Bollinger Band and Williams Index and for this reason I will be a buyer on any further dip to 6605/6625 with a 6585 stop. I will still be a seller on any rally back to 6695/6715 with a 6735 stop.
Dow Rolling Contract
The Dow had another bad trading session yesterday and in the process closed below the key July high at 17150 thus adding to my bearish concerns at this time. I am still short from last Friday at 17330 and today I will lower my stop to 17180. Given how oversold the McClellan Oscillator is printing I will be a small buyer on any further dip to 16890/16940 with a 16850 stop.
December BUND
The Bund plan worked well yesterday as the market had a nice sell-off overnight which enabled me to cover my short 149.15 position at 148.85 and I am now flat. I am still very bearish of the Bund going forward as the 10 year yield is insane at 1%. However given how weak the equity markets are currently trading we may see a rally first before the Bund starts to turn lower. Today I will again be a seller on any rally to 149.40/149.70 with a 150.05 stop.
Gold Rolling Contract
The Gold plan worked well yesterday as shortly before lunch it had a nice spike higher which enabled me to cover my long 1214 position at 1228 and I am now flat. Today I will again be a buyer of Gold on any dip to 1214/1221 with the same 1207 stop which is just below last week’s low.
Silver Rolling Contract
No change as I am still long from yesterday morning at 17.65 with the same 16.95 stop. Given how low the Daily Sentiment Index which is currently printing just 4% bulls I am confident that a rally will soon develop in Silver and hopefully a significant one.
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