Big moves since I posted yesterday morning, not all of them consistent, but they may have caught out investors positioning for a rise in risk aversion. As news of a possible deal between Greece and its creditors came in, Bond Yields – led by Germany, rose sharply. Commodities were buoyed, EUR was bid and risk appetite rose. Just don’t tell equities that. Not all moves were consistent with the same theme, as equity markets, particularly Germany’s DAX, were softer.
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Perhaps they don’t like the idea of incrementally less accommodative policy. On a daily basis, it is often hard to square the asset class circle. Admittedly, here were a few different themes. The positive one from Europe: Not only did we hear that the IMF, ECB and Euro group have some sort of agreement (still yet to be agreed upon by Greece), but also that Euro zone CPI was higher than expected. It’s not rocketing away, but perhaps puts the market’s mind to the fact that the ECB may not have to buy Bonds forever. We will know more today, post the ECB meeting. But the news was enough to push yields higher, (Germany’s bund selloff was the biggest since August 2012) support the EUR and weigh on equities.
In the US, the news wasn’t so positive. Factory orders, typically a second tier release, were weaker than expected but the underlying results ok. More importantly, in Fed member Brainard’s first speech on Monetary Policy, she was decidedly dovish. As the Fed’s International expert, she commented on the negative impact of a stronger USD as well as negatives from lower Oil prices. She was not convinced that the softness in Q1 was due to temporary factors and decidedly is not in the camp of recent Fed members looking to raise rates this year. We would expect a weaker USD on this, and softer equities; but the big rise in yields here doesn’t necessarily add up.
Cross-currents and positioning can make for some funny moves at times. We would anticipate that if Greece gets a deal in coming days (it’s still if: Greece has yet to agree), and that the US Employment data is firmer, then the Yield move is the correct response, if somewhat extreme. The USD will get pushed around by a better Europe outlook against a less accommodative Fed. But with better risk appetite, higher commodities and an outperforming AUD might hold. Helping the AUD substantially outperform (+2.2%!) was the RBA. They kept interest rates unchanged yesterday, with only a slight easing bias in place. They kept the commentary on the AUD unchanged, seeing its fall “likely and necessary’
This morning on the economic front we have Euro-Zone and UK Services PMI at 9.00 am and 9.30 am respectively. This is followed at 10.00 am by Euro-Zone Retail Sales and Unemployment. At 12.45 pm we have the ECB Rate Announcement and as I am writing this commentary there is no scheduled press conference with Draagi but this main change as the morning goes on. This afternoon the US will release its latest ADP Employment and Trade Balance at 1.15 pm and 1.30 pm respectively. This is followed by Services PMI and ISM Non-Manufacturing at 2.45 pm and 3.00 pm. Finally on what looks like is going to be another very busy and volatile trading session we have the Fed’s Beige Book at 7.00 pm.
June S&P 500
My June S&P plan worked very well yesterday as shortly after the European Markets opened the S&P traded lower to my 2101 buy level before having a nice rally after the US Markets opened which enabled me to cut this position at 2109 as indicated in my new Platinum Service and I am now flat. The volatility across all markets was extraordinary yesterday especially with the higher Bond Yields which really effected the Currency markets. Yet again the S&P bottomed at the 2095/2100 now major support area. This is the sixth time we have bottomed at this level and had at least a 15 handle rally. However the risk reward from here is that we are going to break this level sooner or later as the internals of the market are not acting well. Today I will lower my sell level to 2112/2118 with a 2124 stop. I am not going to be a buyer at the 2095/2100 level today preferring to see if we can finally break this level. If we do break 2095 I can see the market accelerate lower and today my only interest in buying is on a drop to 2077/2083 with a 2069 stop.
EUR/USD
What an extraordinary day in the Euro yesterday with the Dollar having its weakest trading session in over six years. I was very unlucky as soon after I posted the Euro made a low at 1.0915 which just missed my 1.0900 buy level by 15 points before exploding higher. Subsequently the Euro rallied to my 1.1085 sell level before literally a few minutes later stop me out of this position at 1.1160 and I am now flat. The 1.1170/1.1230 is strong resistance and today I will be a small seller from 1.1185/1.1220 with a 1.1255 stop. Given the extent of yesterday’s move higher I am going to stand aside from buying the Euro as I do not see any decent risk/reward in been long the Euro up at these lofty levels. However a break and close over 1.1250 will be very positive and opens up a move higher to at least 1.15.
June Dollar Index
Thankfully I had no buy level in the Dollar yesterday as the market having just missed my 97.80 sell level after I posted with a 97.65 high just got slammed. The Dollar as I mentioned above had its worse day in over six years and traded down to a low at 95.80 before having a small rally into the New York close. I am still flat and today I will be a small buyer on any further dip to 95.30/95.70 with a 94.90 stop. I do not want to be short the Dollar at current levels.
June DAX
Shortly after the European Markets opened yesterday morning the DAX went into free-fall and this enabled me to buy the DAX at my 11340 buy level. The DAX subsequently made a low at 11270 before having a massive 140 point rally which enabled me to cover this long position at 11400 and I am now flat. Obviously with the higher EUR/USD exchange rate the DAX is underperforming but I still stand by my earlier comments over the last week that I believe that some sort of deal will be agreed for Greece. Today I will again be a small buyer on any dip lower to 11230/11280 with an 11170 stop. I still do not want to be short the DAX at this time especially with the market 1100 points lower from its April high.
June FTSE
Shortly after the London Markets opened yesterday morning the FTSE followed the other main Indices lower with the market eventually hitting my 6900 buy level with a 6857 low before having a nice rally which enabled me to cover this position at 6940 and I am now flat. Today I will again be a small buyer on any dip lower to 6840/6875 with a tight 6825 stop. I still do not want to be short at current prices especially with the 6850 level been such a strong support pivot.
Dow Rolling Contract
The Dow plan also worked very well yesterday as shortly after I posted the Dow traded lower to my 17930 buy level before having a quick rally which enabled me to cover this position at 17990 which again was outlined in my new Platinum Service and I am now flat. It is amazing the Dow is unchanged for the year despite the huge up and down swings that we have had so far in 2015. As I mentioned in my S&P commentary the Internals of the market are very weak which is a major worry going forward. Today I am going to lower my sell level to 18090/18150 with an 18190 stop. The next major support for the Dow does not come in until 11750 and today I will be a small buyer on any dip lower to 17740/17790 with a tight 17710 stop.
September BUND
I have now rolled to the September Contract which currently trades at a discount of 52 points to the June Contract which expires the coming Friday.
I was very unlucky with my long 154.60 Bund position as I mentioned that I wanted to cover on any rally to 155.00, as the market made a high at 154.96 before falling over 200 points and at the same time stop me out of this position for a very small loss at 154.25 and I am now flat. There is no doubt that there are some very stale longs above the market and these Fund Managers are now sitting on some major losses. The Sept Contract has very good support at 150.50 and today my only interest in buying the Bund is in front of this level but no higher than 150.90 with a wider 149.90 stop.
Gold Rolling Contract
Gold just missed my 1183 buy level before rallying higher and I am still flat. I must say I am surprised by how weak Gold is when you consider how weak the Dollar is trading. Today I will move my buy level slightly higher to 1182/1189 with a 1175 stop.
Silver Rolling Contract
No Change as I am still long from yesterday evening at 16.70 with the same 16.20 stop.
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