Another relatively theme-less trading day yesterday with a plethora of sound bites but not a lot of consistency. US Equities were lower whilst European Stocks closed somewhat mixed. US Bond yields were lower and the US Dollar higher as the Euro was the G10 ‘out-performer’ at flat. The big mover was the Dubai Stock Exchange which is falling sharply after rising 270% in the last two years and despite being upgraded this month by MSCI from a ‘frontier’ to an ’emerging market’. Participants took this upgrade as an opportunity to sell amid concerns over a massive construction company.
The interesting news from yesterday were the calls for action rather than words. The first of these were from the known Fed Hawk, Plosser. He noted that whilst he agreed with the last FOMC Statement (i.e. he did not dissent), the economy is improving and that the forward guidance is going to have to reflect that soon. Next up was Fed Member, Dudley, the dove, who was asked at a speech about the forecasts for a mid-2015 rate hike. He noted that it is a reasonable forecast but ‘forecasts often go astray’. Again facts can change and so may the Fed.
And finally to the Bank of England Governor, Carney, who was testifying to the Treasury Committee. There was much discussion of the use of a recent speech at the Mansion House by Carney to signal the change in view regarding the timing of the rate hiking cycle. It is clear that the MPC is supportive of such an earlier move but that the Committee would prefer the use of official statements to relay this information. Thus the key message from yesterday was that forward guidance is useful but the data is becoming far more important. The BoE may become more circumspect about off-piste changes of direction in future. Maybe we get more action rather than words in the coming phase of G10 Monetary Policy.
Yesterday’s data was somewhat mixed. US House prices were soft but the market chose to focus on strong New Home Sales which rose a massive 18.6% versus 3.7% last month. Consumer Confidence was solid whilst, in contrast, the German IFO Survey was soft and disappointing.
This morning on the economic front we have UK CBI Reported Sales and German GIK Consumer Confidence. This is followed at 1.30 pm by US Durable Goods and GDP. At 2.45 pm we have the US Markit Services PMI.
September S&P 500
In what could be the first of the two decent down-days, that we need for the S&P to turn bearish, occurred yesterday as it had a significant Key Day Reversal. Initially it made a new high at 1959.75 on much stronger than expected New Home Sales before spending the rest of the day trading lower on the escalating violence in Iraq, to make a new low at 1940 and closed very near this level. It needed this correction as the market had been up in 14 of the previous 16 trading sessions. The question now is ‘is this the start of something nasty or will we re-group and again make new highs?’. Today is going to be a key day in this regard as if we have another decent sell-off then we can say that the market has at least put in a short-term top.
The S&P plan worked well as the market traded up to my 1958 sell level and after a nice move down I was able to cover this position at 1947. It continued to fall into the close and I eventually went long at 1942. I am still long and I will leave my stop the same at 1937. I will also be a small seller on any rally to 1947/1951 with a 1954 stop.
Euro/USD
My Euro plan worked well yesterday as shortly after I posted the market had a nice rally which enabled me to cover my long position at 1.3625 and I am now flat. It is interesting that despite the weaker German IFO Survey and stronger US economic data that the Euro could not sell-off. Today I will again be a small buyer on any dip to 1.3575/1.3600 with a 1.3555 stop. I still do not want to be short the Euro at this time.
US Dollar Index
No change as I am still long from last week at 80.25 with the same 79.90 stop.
September DAX
I was unlucky with my Dax plan yesterday as the market just missed my 9970 sell level by a few points before following the S&P lower – I am still flat. Today I will still be a small buyer on any dip to 9810/9845 with a 9790 stop. I will also lower my sell level to 9940/9970 with a 9985 stop.
September FTSE
The FTSE had a bad day yesterday as the market has now firmly rejected the key 6790 resistance point and is currently trading 80 points below this level. As I have mentioned over the last few months the FTSE is a potential warning indicator for the other stock markets as it was the first major index to make a top in 2000, 2007 and so far in 2014. Today I will lower my sell level to 6740/6770 with a 6785 stop which is just above yesterday’s high. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
I was unlucky with the Dow yesterday as just after I posted it made a new low at 16881 just one point above my 16880 buy level before the market rallied 100 points. It then fell 200 points from this high on escalation tensions in IRAQ and in the process also had a significant Key Day Reversal, just like the S&P. I am reluctant to go short the Dow today given the fact that it is Month and Quarter end on Friday and today I will be a small buyer on any dip to 16750/16780 with a 16720 stop.
September BUND
The Bund having been down earlier in yesterday’s trading session turned around as soon as the stock markets started to weaken. The Yield for the Bund, at sub 1.3%, is insane and points to an approaching economic depression rather than expansion as predicted by the over-valued stock markets. Today given how overbought the Bund is currently trading I will be a small seller on any further rally to 146.70/147.00 with a 147.20 stop. I do not want to be long the Bund at these levels.
Gold Rolling Contract
I was surprised at how weak Gold traded yesterday given the sell-off in the Equity markets coupled with the escalating tensions in the Middle-East. I am still flat and I will leave my buy level the same at 1295/1306 with a 1293 stop.
Silver Rolling Contract
Silver continues to consolidate over the now key 20.50 support level. I am still long from two weeks ago at 19.58 and I will leave my stop the same at 20.50. If Silver can break 21.20 I will raise my stop to 20.90 on this position. If I am stopped out at 20.50 I will still be an aggressive buyer in front of 20.20 with a 19.80 stop.
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