The issues that beset risk markets at the start of the week were less in evidence yesterday despite the absence of obviously better news. Though the US Stock indices are back from their intra-day highs they still closed up 0.5% as the market still looks for the S&P to break the 1576 high from 2007.Benchmark Bond Yields are higher whilst peripheral Euro-Yields are smartly lower. Cyprus has reached agreement with it’s international creditors that will grant it until 2017 to achieve a primary Budget surplus of 4% of GDP. Gold and Silver are a lot lower in keeping with increased risk sentiment. The USD/JPY is recovering somewhat from yesterday’s purge on short Yen positions ahead of tomorrows Bank of Japan meeting. This weakening of the Yen was helped by comments from the Governor of the BOJ, Kuroda, who said it is not easy to defeat inflation which has continued in Japan for fifteen years, but the bank will use all options available and do whatever it takes to show markets its strong commitment. The Euro-Zone PMIs released yesterday were a touch stronger than expected but still almost all in sub-contractionary territory. The Euro-Zone unemployment rate is now a record 12% and the numbers for youth unemployment in the periphery remains frightening – 23.9% across the Euro-Zone, 58.4% in Greece, 55.7% in Spain, 38.2% in Portugal and 37.8% in Italy. The IMF issued its annual report on reserve positions, last Monday, and as expected the US Dollars position as the worlds reserve currency remains clearly intact as the world held 61.9% of its reserves in US Dollars, down from 62.1% the year previous. Reaching its zenith of 29% of Global Reserves Assets four years ago the Euro is now only 24% and its position is weakening rather than strengthening.
Today on the Economic front we have German and Euro-Zone PMI Services this morning. In the UK at 9.30 am we have PMI Construction whilst later in the US we have ADP Employment Change which will be closely watched ahead of Friday’s Non Farm Payrolls. The ISM Non Manufacturing Composite is also released whilst Williams from the Fed speaks on Monetary Policy later this evening.
June S&P 500
Since 1950, April has been the strongest month for Equities and this is the positive seasonal bias that I mentioned yesterday. The S&P plan worked well as we had a nice rally and I was able to take profit at 1567 on my 1556.5 long position from yesterday morning and I am now flat. The S&P is extremely overbought on both a daily and weekly basis, it is at the top of the Bollinger Band and Williams Index yet until we get two decent down days in a row it is very difficult to short the market for any length of time. The market just fell shy of the 1576 cash high from 2007 and I still feel we will test this level before attempting to roll over. This morning I will use any dip to 1558/1563 to go long in small with a 1553 stop which is just below Monday’s low. I will also look to go short on any rally to 1573/1578 with a 1583 stop.
I will leave you with a quote that I read from a prominent Economist yesterday – “The markets have more power than all the tin-horn politicians on the planet earth. The markets have more power than the Fed and all the Central Banks of the world taken together”.
In essence he is saying that the Feds Inflation and Interest rate manipulations will work only as long as the markets go along with it. The minute the markets see that the Fed’s manipulations are not working their powers will have evaporated.
June Dow
The Dow traded up to my 14600 sell level with a 14612 high. I went short in small as the Dow is like the S&P at the top of its Bollinger Band and Williams Index. I will lower my stop to 14620 which is just above yesterday’s high and I will look to take profit on any dip to 14540/14560. If the market dips down to my take profit area I will look to reset my short position on any subsequent rally to 14640/14670 with a 14710 stop.
Euro/USD
The Euro having just missed my sell level yesterday morning is now in my buy level and I have gone long in small at 1.2795. I will leave my stop at 1.2760 and if I am stopped out I will be an aggressive buyer in front of 1.2680 with a 1.2645 stop. I will still look to sell the Euro on any rally to 1.2870/1.2900 with a 1.2920 stop.
June BUND
The Bund is trying to put in a top but I do not want to chase the market lower and I will leave my sell level the same at 145.60/145.90 with the same 146.20 stop. As I said yesterday I do not want to be long at this time.
June DAX
I was very unlucky yesterday as the Dax just missed my buy level before trading 100 points higher. The break of 7920 is significant and today I am a small buyer on any dip to 7890/7920 with a 7875 stop. I still do not want to be short the Dax at this time until we get a sell extreme and I look for the Dax to trade as high as 8070/8100.
June FTSE
The FTSE has also broken out and I will use any dip to 6370/6390 to get long with a 6350 stop.
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