Equity markets ended weaker yesterday on the back of the weaker than expected US ISM which fell below 50 for the third consecutive month. Production and new orders also fell further. The ISM has been in trend decline for the last 18 months since the peak in early 2011 and continues to loose traction. It suggests that there is some risk that US economic growth will stall and keeps the Fed on track to announce further monetary stimulus at the FOMC meeting next Wednesday. In Europe, Moodys put the European Union’s AAA credit rating on negative outlook but bond yields have fallen as speculation grows that the ECB will embark on secondary market purchases for bonds of 2-3 years to support the struggling countries. Spanish 3 Year Bond Yields fell 49 bps to a yield of 3.97%. Later today, we have services PMI from the Euro-Zone and the UK on the back of the weaker Services PMI which came out from China overnight. This afternoon we have the New York ISM.
Sept S&P 500
Frustratingly, I was stopped out of my 1403 long at 1399 on the back of the weak ISM, only for the market to rally back to 1408 before the close last night. The market rallied on the expectation the Fed will announce QE3 next Wednesday at the FOMC meeting which, as I said yesterday, makes it so difficult to be short despite the weak economy apart from housing which has leveled out and is rising slowly. Today I will look to go long again from 1396/1400 with a stop below yesterday’s low at 1394. I expect the market to rally ahead of the ECB tomorrow and Non Farm Payrolls on Friday. If I am taken long I will look to take profit in front of 1408 and I still want to go short on any spike to the 1420/1425 area with a 1427 stop.
Sept BUND
The Bund rallied into my sell area and I went short at 143.60. I will lower my stop to 143.80 and I will look to take profit from 142.90/143.10 ahead of tomorrow.
Sept FTSE
The FTSE continues to trade at the bottom of its Bollinger Band and Williams Index. I was stopped out of my 5715 long for a small loss at 5705 and I am still flat. Today I will look to long again from 5640/5660 with a 5630 stop.
EURO/USD
I was stopped out of my 1.2590 long at 1.2570 and I am now flat. It just shows how important it is to have your stops in place whilst it was frustrating for me in the way in which the S&P played out yesterday, it proved to be the correct decision with the FTSE and the Euro. As I keep saying you make most money when you are flat, as your view is not clouded by the stress of being in a position and you have the chance to ‘dust yourself off’ and start again. Today I will look to go long the Euro in small from 1.2490/1.2520 with a stop below the very important support at 1.2450. If we break and close below here, it will be short term bearish.
USD/JPY
I bought the USD/JPY at 7830 yesterday and I don’t want to risk too much on this trade and and I will leave a stop at 7810. I will also look to take profit on any rally back to the 7870/7890 level.
Sept DAX
The Dax got hit hard yesterday and I will look to go long in small on any dip to the 6870/6900 area with a 6850 stop. If I am taken long I will look to take profit on any rally back the 6950/6970 area.
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