After sharp drops in Asia, European equities cratered yesterday and following a big decline at the open, US equities rallied late to close in positive territory after a dramatic trading session. The Dow closed up 567 points which was an incredible 1800 points off yesterday morning’s low print at 23115. Meanwhile , the VIX Index briefly traded above 50 and remains elevated at 31, while the US Dollar has pared back all the gains seen at the start of the New York session and after an initial rally UST 10y yields are higher relative to where I marked prices 24 hours ago.After sharp equity losses in Asia which saw the Nikkei close down 4.73%, Europe followed a similar line with all major regional indices closing over 2% lower. US Equity futures suggested a similar outcome was in line on for US equities, but after a sharp decline at the opened US indices have rallied into the close. The VIX index has also endured a bit of a roller coaster ride, climbing just above 50, sinking to 22 and now it has stabilised around 30.
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For anyone following my Platinum Service it finished flat yesterday and is now ahead by 389 points for February having made 879 points in January, 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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Looking back in history the jump to 50 in the VIX index is pretty remarkable, indeed since 1990 there have only been 9 periods where the VIX has traded above 40. The index is now back at 30, so the move above 50, at this stage at least has been very brief. Notably too, although events over the past few days have also seen sharp rises in bond and currency volatility, unlike equity volatility these spikes have not reached historical extremes. The Move Index, for instance, is currently at 60, its highest level since May last year and nowhere near the highs of 92 reached in mid-2015 or the 208 level reached at the peak of the GFC in 2008. A similar story can be seen in currency volatility, the CVIX Index has risen a point in the last month to 8.7 currently, in 2015 it reached levels just above 11 and during the GFC the index traded to a record high of 23.15.
So the current equity rout has been relatively contained with limited spill-over effects onto other asset classes, this probably helps explain the remarkable stability of traditionally risk sensitive currencies such as the AUD and NZD. NZD is the best performing G10 currency over the past 24hrs, after trading to an overnight low of 0.7257, the kiwi now trades at 0.73, up 0.55% over the past 24hrs. The rise in US equities over the past few hours and a solid dairy auction appear to be the main factors behind the flightless bird’s performance. The GDT Price Index rose 5.9% and a rise in prices was recorded across the board including wholemilk powder, skim milk powder, cheese and butter all up between 7% and 8.
Softer Retail and Trade figures weighted on the AUD yesterday and the initial softness in equities saw the AUD trade to an intraday low of 0.7836. But just like the kiwi, the improvement in risk sentiment has helped the pair recover all the lost ground and some over the past 24hrs. AUD now trades at 0.7891, up 0.20%. Yesterday the RBA left rates on hold at 1.50% now steady for 18 months and reaffirmed the current policy setting. There was quite a few wording changes but the messaging of a gradual increase over time in inflation toward target and growth to pick up over the next couple of years to average a bit above 3% has not changed.
So the recovery in risk sentiment has seen the USD give back most the gains recorded in the earlier part of the overnight session, DXY is essentially unchanged relative to yesterday morning ( currently at 89.59). After trading to an intraday low of 108.46, USD/JPY is now at 109.15 and a similar pattern can be seen for the Euro, the pair currently trades at 1.2392, after dipping to a low of 1.2314 just after lunch yesterday.
As I am about to press the send button, 10y UST yields are currently trading at 2.78%, up over 10bp from yesterday’s low in Asia, but still 10bp below Monday’s high. Meanwhile, commodities appear to be lagging the improvement in sentiment with most of the complex trading in negative territory. Oil prices are down between 0.9% (Brent) and -0.3% (WTI), gold is 0.6% while copper and aluminium, are down 1.4% and 1.7% respectively . Iron ore is unchanged at $74.
This morning on the Economic Front we already had the release of German Industrial Production which printed -0.6% versus -0.7% expected. At 8.30 am we have the UK Halifax House Price Index and this is followed by the European Commission Economic Forecasts at 10.00 am. Finally we have US MBA Mortgage Applications and Consumer Credit at 12.00 pm and 8.00 pm respectively.
Speaking wise today is busy with ECB’s Nouy and the Fed’s Kaplan speaking this morning at a conference in Frankfurt. This afternoon the Fed’s Dudlet speaks at 1.30 pm and Evans at 3.15 pm on Economic Outlook.
March S&P 500
Yet again we had an incredibly volatile trading session as we got the Tuesday Turnaround that I was looking for. Although the S&P did miss my buy level the idea of buying the dip was correct as signaled by the McClellan Oscillator which closed at one of its highest ever negative readings at -358. Last night the MO improved to close at a still oversold level of -243. In yesterday’s commentary I mentioned that the S&P would have resistance from 2660/2670 and after the US Markets opened we rallied to a high of 2681 before falling 60 points. Eventually after a lot of sideways volatile action we rallied to a high of 2700 into the close. I have no doubt that the Fed and other Central Banks were behind this rally as the ramifications of a melt-down are severe. Overnight the S&P has traded lower to bottom so far in front of 2660. Today I will be a small buyer from 2648/2658 with a 2638 stop. Given the extent of yesterday’s rally off the 2530 early morning low I would expect the buy the dip to return. However we need to break and close above 2750 over the coming days or else this could be the start of a Bear Market. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2607/2617 with a 2598 stop. I will also be a seller from 2745/2755 with a 2765 wider stop.
EUR/USD
The Euro just missed my buy level before rallying back above 1.2400 and I am still flat. Today I will raise my buy level to 1.2280/1.2320 with a 1.2245 stop. I still do not want to be short the Euro at this time.
March Dollar Index
Unfortunately the Dollar just missed my buy level before rallying as expected and I am still flat. Today I will now raise my buy level to 88.70/89.10 with a 88.335 stop.
March DAX
The DAX rallied from the off yesterday morning to end the day over 600 points off its opening low at 12070. I am still flat. However given the volatility I am not going to chase this market higher and today will only raise my buy level to 12280/12355 with a 12230 stop.
March FTSE
I am still flat the market which had a weak close but has since reversed this overnight with a large move higher. Today I will now raise my buy level to 7030/7080 with a 6990 stop. The FTSE has very strong resistance at 7300 and we need to break and close over this level or else we could be in the start of a serious Bear Market.
Dow Rolling Contract
Sometimes you get lucky with your calls and other times we miss by small margins which is exactly what happened yesterday with the Dow’s low print at 12.00 pm coming in at 23548, just missing my 23520 buy level before rallying to close at 24912. This was an incredible move proving yet again if you are short the US Stock markets you have to be nimble and take your profits before they evaporate. The Fear & Greed Index closed last night with an Extreme Fear reading of 18 from Monday’s 17 print and is another reason why not to be short stocks at this time. Given the extent of yesterday’s rally I would expect the downside to be limited today and I will now raise my buy level to 24350/24500 with a 24270 stop. I have to use wider parameters with smaller stake size to allow for the volatility.
March NASDAQ
The NASDAQ did rally strong off my 6260/6450 support level. However given how wide this support area was I did not buy the market myself and I am still flat. Today I will now raise this buy level slightly to 6480/6530 with a 6445 stop. I still do not want to be short the market at this time.
March BUND
No change as my only interest in buying the Bund is still on a dip lower to 157.90/158.25 with a 157.60 stop.
Gold Rolling Contract
My fear of Gold trading lower continues as despite the aggressive sell-off in Equity markets Gold could not rally. I am still flat as this market is tricky to trade with all eyes on the stock market. As I am long Silver I will continue to stand aside in Gold as I do not have an edge in this market at this time.
Silver Rolling Contract
Silver traded lower to my 16.65 buy level yesterday afternoon. I am still long and will only add to this position on any move lower to 16.30 with the same 15.95 stop. I will leave my T/P level unchanged at 16.85 and if my second buy level is filled I will then lower my T/P level to 16.60.
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