Global Equity markets remained under pressure with shares extending their losses yesterday. The Dow and S&P closed down 0.75% and 0.9% respectively while European Indices closed down an average of 0.7%. Oil prices continued to fall with WTI falling another 3.7% to $48.20. With the market currently obsessed with supply side news this afternoon’s Weekly EIA Report is expected to show US stockpiles rose by 700,000 barrels last week.
The sharp decline in stock markets in recent days, combined with the sell-off in Oil and lower inflation expectations (and fears of deflation in Europe), has seen Bond Yields ease considerably. US 10-Year fell from 2.03% to 1.89% yesterday before rising slightly to close at 1.95% which is the first time they have closed below 2% since May 2013. The German Bund touched new historic lows at an incredible 0.44%.
Sentiment was not helped by the release of Services PMI’s, where slower growth was seen in the US, Europe and the UK. The US ISM Non Manufacturing Index fell to 56.2 in December from 59.3 in November while US Factory Orders fell 0.7% in November versus -0.5% expected.
On the currency markets the Japanese Yen has regained some of its ‘safe haven’ capacity with USD/JPY now back trading below 119 having touched 120.80 on Monday. The plunging Euro is trying to stabilise above key long term support at 1.1850 while Sterling was again the weakest currency yesterday with Cable now trading at 1.5140, down from 1.5800 last week. Sterling was hit on the very weak December Services PMI which printed 55.8 versus 58.5 expected.
This morning on the economic front we have German and Euro-Zone Unemployment at 8.55 am and 10.00 am respectively. The Euro-Zone will also release its latest CPI at 10.00 am which has the possibility to have a significant outcome for today’s trading. At 1.15 pm we have the latest US ADP Employment Change and this is followed at 1.30 pm by the US Trade Numbers. Finally at 7pm the Fed will release its Minutes from the December 16/17 FOMC Meeting which led to a huge bounce in the stock market.
March S&P 500
The S&P had another volatile trading session yesterday as all eyes turn to the release of the FOMC Minutes this evening at 7pm. After I posted yesterday, the S&P traded lower to 2011 before having a decent rally to 2024 which enabled me to cover my long 2018 position from Monday at 2023. The S&P then got slammed on the lower Oil prices with the market making a new low at 1987 before again trying another ‘Hail Mary’ rally. I used my ‘5 Handle Rule’ following this sell-off which saw me going long again at 1993. Following this latest rally effort I covered this position at 2003 and I am now flat. Yet again the S&P had another nasty sell-off into the close. The S&P has short-term resistance at 2016 and decent support at 1970. Today I will be a small seller on any further rally back to 2012/2017 with a 2020 stop. I will also be a small buyer against yesterday’s low at 1986/1992 with a 1983 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer from 1972/1978 with a 1967 stop.
Euro/USD
After I posted yesterday, I was stopped out of my long 1.1935 position at 1.1895 and I am now flat. As I mentioned above the next key support for the Euro is at 1.1850 which contains a trend-line going back to 2005. The Euro has now fallen 15% since the 1.3993 highs made last May. Today I will again be a small buyer from 1.1850/1.1880 with a 1.1825 stop. A break and close below 1.1850 for 2-3 days will be even more bearish and opens up a move lower to at least 1.1620 before we get our next decent support level.
US Dollar Index
No change as I am still short at 91.70. Given how extreme the sentiment is in favour of the Dollar and the fact that the Dollar Index is not making new highs despite the Euro making a new low I am going to move my stop higher to 92.30 on this position. If The Dollar breaks 91.40 I will lower my stop to 91.90.
March DAX
The Dax plan worked out well, as yesterday afternoon the Dax had a decent rally to my 9580 sell level with a 9630 high before following the S&P lower which enabled me to cover this position at 9490 and I am now flat. Today I will again be a small seller on any rally back to 9610/9640 with a 9660 stop. As I mentioned yesterday my only interest in buying the Dax is on a dip to 9270/9310 with a 9220 stop.
March FTSE
The FTSE plan also worked well yesterday as it also rallied to my 6360 sell level after I posted. The FTSE also followed the other major Indices lower which enabled me to cover this position at 6300 and I am now flat. Today I will again be a small seller on any rally back to 6350/6380 with the same 6410 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
I was very unlucky again with my Dow level yesterday as it just missed my sell level by 35 points before falling 300 points and I am still flat. Despite the huge fall in the Dow over the last five days the McCellan Oscillator closed yesterday with a negative reading of only -125 and not yet near levels where it would be tempted to go long the market. Today I will lower my sell level slightly to 17490/17540 with a 17595 stop as I do not want to chase this market lower especially with the release of the FOMC Minutes later this evening.
March BUND
After I posted yesterday morning the Bund again started to rally hard which eventually saw me go short at 157.00. I am still short and today I will raise my stop on this position to 157.40 as I want to give this trade some room to move especially considering the volatility.
Gold Rolling Contract
No change as I am still a small buyer from 1192/1201 with the same 1183 stop.
Silver Rolling Contract
Silver had a nice rally yesterday but again stalled at the key 16.70 resistance level. As I have had my long 15.80 position for nearly three weeks now I decided to cover this trade yesterday at 16.60 and I am now flat. Today I will again be a small buyer on any dip to 16.00/16.40 with a 15.70 stop. If Silver breaks 16.80 I will also be a small buyer with a tight 16.35 stop.
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