Despite some very impressive economic data on both sides of the Atlantic yesterday equity markets finished the day on the defensive. In particular the DAX which, despite the robust Factory Orders data which came in at +3.8% versus 1.1% expected, having made a higher high than Monday closed down 1.2% and in the process created a Key Day Reversal (See the Education Tab on Tradernoble.com for an explanation).The US Trade Balance came in at $10 billion less than expected whilst in the UK we got more evidence of an economy ‘on fire’ as Industrial Production rose by 1.3%, helped by a 2% jump in Manufacturing Output. The US Equity markets were not helped by comments from Chicago Fed President Evans (an important voting Fed Member) who told reporters that the Fed was quite likely to reduce QE Bond buying later this year and that he would ‘clearly not rule out a September start to tapering’.
This morning on the economic front we have, in the UK, the Lloyds Employment Confidence Index and the Bank of England Inflation Report. This is followed by German Industrial Production. Later from the US, at 1.30pm, we have MBA Mortgage Applications and Consumer Credit followed in the afternoon by the Fed’s Pianalto who will speak on Monetary Policy in Cleveland.
September S&P 500
One of the most important lessons that I have learned over the years is never to assume how the market will react to news. People have lost a lot of money by trading on the expectation that every piece of positive news means an up move and on the flip side, that negative news will bring the market down. Yesterday was a case in point, the news from both sides of the Atlantic was very positive, and yet the the equity markets all closed lower! To me, the reason is that there is a lot of positive news already priced into the market with the S&P up nearly 20% year-to-date which means that future positive data will have less and less impact. This is not good for the bulls and suggests that a correction is looming on the horizon! Therefore I think caution is important in trading on the long side for the moment.
Yesterday the S&P dropped down to my 1692 buy level with a 1688.5 low before having a small rally and, given my concerns above, I cut my position at 1694 and I am now flat. Today I am a seller on from 1692/1697 in small size with a 1702 stop. For the reason outlined above I don’t want to buy the market at this time.
Euro/USD
The Euro market has been very frustrating for me over the past week as despite having the correct view that it would rally against the US Dollar the market kept missing my buy level before trading higher! However I believe that I need to change tack because, as I explained above, I am concerned about equity markets which if they weaken will cause the Dollar to strengthen. Today I will lower my sell level to 1.3330/1.3360 in small size with a 1.3420 stop. I do not want to buy the Euro as I want to see how the equity markets trade in today’s session before trading to the long side.
September FTSE
The FTSE plan worked well today as the market dropped down to my 6530 buy level before having a late rally into the close and I was able to cover this position at 6565 and I am now flat. The key level for the FTSE is 6500 and as long as we can stay over this number the market should be fine but a break and close below here will be very bearish. Today I am a small buyer on any dip to 6500/6520 with a tight 6485 stop.
September DAX
The DAX had a very bad day yesterday as I mentioned and even put in a Key Day Reversal to the down side – this is one signal that I always respect. The market dropped down to my 8350 buy level before quickly stopping me out at 8320 and I am now flat. Today I am a seller on any rally to 8330/8360 with a 8380 stop.
September BUND
After I posted yesterday morning I was quickly stopped out of my 142.40 long position at 141.95 on the good Factory Orders data and I am now flat. The Bund has traded heavy over the last week and today I am a small seller on any rally to 142.25/142.50 with a 142.65 stop.
Gold Rolling Contract
I was stopped out of my long Gold position at 1288 and I am now flat. Gold is also trading very heavy and the fact we broke through the 1290/1300 support zone so easily concerns me. I am going to stand aside in Gold today to see how the market trades before making my next decision.
Silver Rolling Contract
The only comfort is that Silver is trading better than Gold. I am still long in small at 19.72 and ,given my position size is small, I am going to lower my stop to 19.10 to try and give this trade some room. If Silver does not rally today I will cut my position and stand aside.
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