If it was not for the OPEC meeting later today then yesterday’s trifecta of solid US data releases should have provided a boost to risk assets, sent US Treasury yields higher and boosted the US Dollar. Instead while equity markets had a decent past 24 hours, posting modest gains on either side of the Atlantic, the US Dollar and US Treasuries yields are a little bit lower with the boost from the positive data releases proving to be short-lived.
To mark my 1200th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 54 points yesterday and is now ahead by 1756 points for November having made 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
The US second quarter GDP growth was revised up to 3.2% from 2.9% (above the consensus of 3.0%) with almost all the revision coming from the consumption component. So the US consumer was happy in Q3 and appears to have remained in a positive mood so far in Q4. In November, the Conference Board’s Consumer Confidence Index jumped to 107.1 from 100.8, well above consensus at 102.0.The survey partly captured the immediate impact of the election and it is now at its highest level since 2007, suggesting real consumer spending should rise to 3.5% yoy. Not quite a sustainable pace given real income growth is at 2-2.5%, but still very buoyant indeed. Last but not least the Case-Shiller Home Price Index recorded a 5.5% annual gain in September climbing above the housing boom high in July 2006 and if recent Existing Home Sales figures are any guide, further gains should be expected over the coming months.
So while equities managed to make modest gains yesterday, painting a picture of a healthy risk appetite backdrop. The softness in the USD and modest decline US Treasury yields suggest a more cautious underlying tone is at play amid fading hopes of an OPEC deal later today. Oil prices have continued to slide with Brent down 3.6% and WTI down 3.7% following comments late yesterday from Saudi Arabia that output curves are not essential.
Looking at currencies in more detail, the USD has only managed to outperform the Yen (-0.36%), it is little changed against the CAD, NOK and AUD and softer against EUR (0.27%), GBP (0.66%) and NZD (0.80%). The NZD has been the outperformer, it is currently trading at 0.7150 with the 200-day moving average currently at 0.7040 which should provide some support to the currency while near term resistance is likely to be encounter on any moves above 0.72. Meanwhile after trading to a low of 0.7433 immediately after the US data releases, the AUD has recovered some ground and it is currently trading at 0.7485. Last week I noted that the AUD was starting to look cheap given the buoyancy in risk appetite and resilience of commodity prices. My model is currently suggesting the AUD still has the potential to trade a little bit higher, however lingering concerns over the stability in EM markets as well as imminent risk events (OPEC and Italian referendum and Austrian election) suggest meaningful upside looks limited for now.
Softness in commodity prices has also not helped the AUD. Iron ore lost 4.4% overnight (yesterday the Dalian exchange raised its margin requirement on iron ore futures from 8% to 10%), steaming coal was -4.1% and copper was down 3.0%.
This morning on the economic front we have German Unemployment at 8.55 am and this is followed at 10.00 am by Euro Zone CPI. At 1.15 pm we have US ADP Employment Change and this will be closely watched ahead of Friday’s NFP data. Next at 1.30 p we have US Personal Income/Spending and the PCE Deflator. This is followed by the Chicago Purchasing Manager’s Survey and Pending Home Sales at 2.45 pm and 3.00 pm respectively. Finally the Fed will release its latest Beige Book at 7.00 pm.
However the key event will come from Vienna where ministers from OPEC are scheduled to meet and hopefully finalise the first cut in oil production in eight years. In April and June this year OPEC failed to agree an output cap after months of consultation with Iran on both occasions proving the major sticking point. If recent headlines are any guide, it seems that not much has changed with objections to output cuts from Iran and Iraq seemingly the two major stumbling blocks to current negotiations. I see the OPEC meeting as a binary event, failure to reach an agreement could be very negative for energy stocks and broader risk markets and vice-versa on a (credible) deal that lifts oil prices significantly.
December S&P 500
The US stock markets traded again in a very narrow range yesterday. Although the markets posted small gains, interestingly the McClellan Oscillator again fell to close with a positive reading of just +83 which is incredible when we see the markets just a few points from all-time highs which were made last Friday. I am still flat the S&P which again just missed my 2193 buy level with a 2196 low print before rallying. We have a host of economic data today on top of the OPEC Meeting in Vienna which should result in two-way volatility. Today I will raise my buy level slightly to 2189/2195 with a 2182 stop. If I am taken long and subsequently stopped out of this position I will use my ”5 Handle Rule” to go long again with a stop below whatever new low is printed. I will also raise my sell level to 2216/2222 with a 2227 stop.
EUR/USD
For the second consecutive day, the Euro bottomed at the 1.0560 level before rallying strongly to close at 1.0640. I am still flat the Euro which continues to have a wide negative divergence versus the US Dollar Index which broke its 100.65 March 23, 2015 high last week, while so far the Euro has comfortably held its equivalent low at 1.0462. This latter level is key for the Euro as a break and close below here opens up the possibility of a test of 99/1.01 over the coming weeks. With the Italian Referendum on Sunday we are most likely to see a large ”Gap” either up or down when the markets open on Sunday evening depending on the result. Today I will move my buy level higher to 1.0550/1.0590 with a 1.0515 stop which is just below last Thursday’s low print. If I am taken long and I manage to T/P on this position, or I am stopped out of any long position, I will be an aggressive buyer on any further dip lower to 1.0430/1.0480 with a 1.0390 stop. I do not want to be short the Euro at this time given the still single digit reading for the Daily Sentiment Index.
December Dollar Index
My Dollar plan worked well with the Dollar hitting my 101.70 sell level before falling to an overnight low at 100.88. As I want to continue with my theme of banking points when available I covered this short position at 101.50 and I am now flat. We still have this large divergence in the Dollar versus the Euro and today I will again look to sell the Dollar on any rally higher to 101.65/102.05 with the same 102.30 stop.
December DAX
Unfortunately the DAX held support at the 10550 level before bouncing into the close. This morning the DAX is trying to rally again and today I will move my buy level higher to 10510/10570 with a 10460 stop. Given the weakness of the Euro plus the fact that today is month-end I do not want to be short the DAX at this time. Remember a break and close over the key resistance from 10800/10850 is bullish with a 11160 target level over the coming weeks.
December FTSE
My FTSE plan worked well with the market hitting my 6745 buy level before bouncing which enabled me to cover this position at my revised 6763 T/P level and I am now flat. The FTSE continues to struggle with the rally in Sterling over the past few days not helping. The fact that the FTSE continues to trade heavily could possibly be a warning sign for the other major Indices. Today I will again look to buy the FTSE on any dip lower to 6715/6750 with a 6680 stop. As mentioned yesterday, the FTSE has strong support from 6695/6720 and a break and close below 6690 will be bearish.
Dow Rolling Contract
I am still flat the Dow which has traded sideways over the past few trading sessions as the market tries to work off its overbought condition. The fact that the McClellan Oscillator is weaker since Friday is a worry for the bulls and today I will again look to sell the Dow on any rally higher to 19210/19270 with a 19340 stop. Given how overbought the Dow is trading I do not want to be long the market at this time.
December BUND
My Bund plan worked well with the Bund hitting my 161.40 buy level with a 161.33 low print before rallying strongly. Unfortunately I was not happy with the Bund price action at the time given the stronger US economic data and I emailed my Platinum Members to exit this long position too early at 161.56 and I am now flat. It is now clear that the 161.10/161.35 level is key support and that the bulls must defend this level. Today I will again look to buy the market on any dip lower to 161.05/161.35 with a 160.75 tight stop.
Gold Rolling Contract
Unfortunately Gold just missed my 1177 buy level with a 1180.70 low print before rallying to a 1195 high print overnight and I am still flat. This sideways move in Gold is easing its oversold condition but with the DSI still in single digits in my opinion it is only a matter of time before Gold puts in a meaningful bottom that lasts for more than a few weeks. The key level is still the 1170/1175 support level and today I will raise my buy level slightly to 1173/1183 with a 1165 stop. I do not want to be short Gold ahead of the OPEC Meeting today.
Silver Rolling Contract
No change as I am still long Silver with a now lower 16.85 T/P level. I will now raise my stop on this position to 16.20 while if I manage to cover my long position at 16.85, I will again look to buy Silver on any subsequent dip lower to 16.35/16.70 with a 15.90 stop.
Following the success of the NFP Live Trading Day and Education Session in London on September 2, Paul Wallace and I are bringing this event to Dublin for the December NFP day next Friday December 2nd from 10.00 am to 4.30 pm. We only have a couple of places left and If anyone is interested in attending this event the details are on the following link:
https://www.eventbrite.com/e/live-nfp-trading-day-dublin-tickets-28159689389
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