It was a more normal trading session yesterday following the big risk off session on Monday. However overnight North korea TV has reported that North Korea leader Kim has conducted a Hydrogen Nuclear test which has sent the markets tumbling again. The other big news overnight was the continuing weakening of the Chinese Yuan which now trades at 6.68 to the US Dollar.
China’s equity market stabilised, following the 7% fall on Monday. I use the word normal fairly loosely, as in China’s context it was the Government trying to control share prices, rather than private sector investors having much influence. Traders pointed to Government funds being active in the market on Tuesday to prop up share prices, while the sharemarket regulator said that it may extend a lock-up period for investors holding more than 5 per cent of a listed stock that was due to expire on Friday. Investors need to be alert to these sorts of shenanigans.
For anybody following my new Platinum Service it made 280 points yesterday and is now ahead by 419 points for January. The previous seven months saw gains of 2065, 1510, 1600, 2833, 2195, 1810 and 3045 points respectively. If anyone is interested in my Platinum Service please check out the link on my tradernoble website.
Other Asian markets did not have the benefit of the government propping up share prices, so they were generally lower, following the previous weak US and European sessions. The Nikkei index was down 0.4%, the Hang Seng was down 0.7% while the ASX-200 was down 1.6%. Overnight the NikkeI closed down another 1% and is currently trading at 18100 which is over 3000 points lower from its highs last year.
Yesterday, European equity markets were in modest positive territory on their own accord, although one must view the 0.3% gain for Germany’s DAX as pretty disappointing following the 4.3% decline on Monday. The S&P500 oscillated within a modest range and closed 0.2% higher before selling off aggressively this morning on the North Korea news.
The key economic news yesterday wasa weaker CPI reading in the Euro area The core CPI rose by 0.9% y/y in December, undershooting market expectations by 0.1%. EUR/USD was already weakening ahead of the release and the weak CPI reading added to its downfall. EUR/USD reached its lowest level in a month of 1.0711, and currently trades down 0.8% at 1.0740.
The US Fed’s Williams was on the telly, saying that he thought about 3-5 rate increases was about right for the US economy this year. Note that this is currently more than the 2 rate hikes currently priced by the market. He gave the impression of not wanting to lock the Fed into a predictable pattern, saying that it was not necessary to move rates only at FOMC meetings with press conferences.
The Yen remained well supported in the more volatile and uncertain market environment and was the best performing of the majors. USD/JPY trades down 0.4% at close to 119.0 and is currently trading at 118.70.
The NZD/USD continued its bad start for the year, falling another 0.8% to around 0.67, trading as low as 0.6677. The latest GDT dairy auction showed an average price decline of 1.6%, with whole milk powder down 4.4%. This was more or less in line with BNZ expectations of up to a 3% decline in the overall price index.
The AUD has also started the year off on a weak note, not helped by weaker commodity prices. The LME index, representing a basket of 6 primary metals fell by 2.2% on the first day of trading this year, while iron ore prices were down by 2.8% yesterday. Some heightened Middle East tension appeared to have only a passing upward impact on oil prices earlier this year. Yesterday, Brent crude closed down 1.8% to 36.60, while WTI crude was down 1.8% to 36.10. This morning WTI is trading at 35.50. AUD/USD is down 0.5% to 0.7150.
The CAD remains out of favour in the weak oil price environment. USD/CAD broke through the 1.40 mark, making the Canadian dollar the weakest since 2003.
Despite the increased market volatility in equity markets and currencies, the US Treasuries market is comparatively sedate, with the 10-year remaining in a trading range. The 10-year rate is flat at 2.24%, and ranged between 2.22% to 2.26%.
This morning on the economic front we already had the release of French Consumer Confidence which came in stronger than expected at 96. At 9.00 am we have German and Euro-Zone Services PMI. This is followed at 10.00 am by Euro-Zone PPI. At 12.00 pm we have US Mortgage Applications. Next up is Canadian Trade Balance which will be closely watched by the markets given the fact that the Canadian Dollar has just weakened to levels not seen since 2003. At 2.45 pm we have US Markit Services PMI. Finally at 3.00 pm we have ISM Non-Manufacturing.
March S&P 500
The S&P traded in another wild trading range after I posted yesterday morning. The market closed strong after Monday’s fallout and the initial sell-off that followed after I posted. However all is changed this morning following the North Korea Hydrogen Nuclear Test which has sent the S&P to a 1986 low. This sell-off has enabled me to go long at my 1990 buy level and following a nice rally I was able to cover this position at my 1998 T/P level as outlined earlier to my Platinum Members and I am now flat. Given what has happened overnight the markets are going to be tricky to trade as we have to see what the US reaction to this Nuclear Test is. For this reason I will trade in smaller size across all markets especially since we have had a very good start to the month. The S&P has strong support at the 1980 level and today I will be a small buyer on any further dip lower to 1976/1982 with a 1971 stop. Again if I am taken long and subsequently stopped I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed. Given how oversold we are trading my only interest in selling the S&P is still on a rally to 2026/2036 with a 2042 stop.
EUR/USD
The Euro traded lower to my 1.0725 buy level yesterday afternoon. Unfortunately I had a T/P level at 1.0775 which just missed by 1 point overnight and I am still short. The Euro is trading at the bottom of its Bollinger Band and Williams Index but the Band is very narrow and thus does not have the same impact as a wider normal band. Today I will lower my T/P level on this position to 1.0755. Subsequently if I manage to T/P on this position I will look to buy the Euro again on any subsequent dip lower to 1.0630/1.0675 with a 1.0595 stop.
March Dollar Index
As I am already long the EUR/USD I am going to raise my sell level in the Dollar to 100.20/100.50 with a 100.80 stop. As I mentioned at length in yesterday’s commentary a break and close over 101 will be very bullish for the Dollar.
March DAX
My DAX plan worked very well yesterday as the market traded to a 10170 low after I posted before allying nearly 200 points. Shortly after I posted I went long at 10195 and as I was already long both the Dow and FTSE I cut this position too early at 10245 and I and I am now flat. This morning the DAX is getting hit hard again and my only interest in buying the market is on a further dip lower to 10080/10130 with a 10035 stop.
March FTSE
The FTSE plan also worked well yesterday as after the market traded lower to my 6040 the market had a nice 70 point rally which enabled me to cover this position at my 6080 T/P level and I am now flat. This morning the FTSE has had another wild trading session with this year’s opening for the market the weakest since the FTSE started trading as an Index. Given the good start to the month I am going to trade more conservatively today. For this reason my only interest in buying the FTSE is on a further dip lower to 5930/5970 with a 5895 stop. Despite the awful price action I do not want to be short the FTSE at this time.
Dow Rolling Contract
Yesterday the US market generated a first Hindenburg Omen since last July. If we get another HO in the next 30 days then we will have a confirmed HO. Remember following the HO in July we had the August mini crash.
The Dow plan worked very well yesterday as shortly after I posted the Dow traded lower to my 17050 buy level before having a nice rally which enabled me to cov rthis position at my 17130 T/P level as outlined earlier to my Platinum Members and I am now flat. Currently the Dow is 200 points lower form last night’s close which is huge Gap left to be filled. Today I will be a small buyer on any further dip lower to 16890/16950 with a 16840 stop. Given how oversold the Dow is trading I do not want to be short the market at this time.
March BUND
The BUND is opening through my sell level from yesterday on the back of the safe haven status following the North Korea Nuclear Test. I am still flat the BUND and my only interest today is to sell the BUND on any further rally to 159.90/160.30 with a 160.55 stop. Remember an awful lot of Hedge and Pension Funds are still trapped long above the 160 level and will use any rally from here to lighten their positions.
Gold Rolling Contract
I must say given the news out of North Korea I would have taught that Gold would be trading over 1100 this morning. Gold is still finding it difficult to break the 1080/1090 now strong resistance level. I am going to leave my buy level unchanged at 1064/1070 with a 1058 stop.
Silver Rolling Contract
No change as I am still long at 13.92 from yesterday morning with the same 13.40 stop.
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