Yesterday, markets looked to be searching for reasons to take risk off the table as they factored in the reality of a slowdown in global growth and the, still present, geo-political risks. They found it in the form of another downside data surprise from Germany with its weaker Industrial Production Report, at -4.0% versus -1.5% expected. On top of this we had a global growth downgrade from the IMF in their latest World Economic Outlook. It is not so much that either of these should have been a surprise but rather to focus the market’s attention on these developments. Germany had recorded an equally weak Factory Orders Report on Monday whilst a growth downgrade has been widely spoken of this past week and somewhat inevitable after the weak data out of China, Europe and Latin America.
The IMF’s latest forecasts for the world economy saw their growth shaved lower by 0.1% to 3.3% from their July update and they knocked 0.2% of their growth for 2015 to 3.3%. These were driven by downgrades to the Euro-Zone, Japan as well major cuts to Russia and Brazil whilst the US was upgraded. European Equity markets responded negatively to these downgrades, falling between 1% and 2% on average. The weak European Indices filtered through to the US markets with the Dow and S&P having a very negative trading session, as they both lost 1.6%.
New York Fed President Dudley came out last night saying that the forecast of a rate rise in the middle of 2015 is reasonable. The US Jobs Openings data for August (a favourite of Janet Yellen) rose more than expected as US businesses were lifting headcount through this past quarter.
This morning on the economic front we have no data of note due from the UK or the Euro-Zone whilst at 12 pm we have the latest US MBA Mortgage Applications. At 4.30 pm the IMF will release its latest six month Fiscal Monitor and finally at 7:00 pm the Fed releases its minutes from the September 16/17 FOMC Meeting.
December S&P 500
The S&P had another very bad trading session yesterday with the market having one of its largest falls for the year at -1.6%. Despite the S&P being down for six of the last seven trading sessions the market is not oversold with the McClellan Oscillator posting a reading of just -141. When I mentioned the large ‘Open Gap’ from last Friday at 1938.50/1952 I did not expect it to be filled so quickly but here were are three days later with the market looking like its shaping up to test the 1919 ‘V Bottom’ low from last Thursday afternoon. If the S&P breaks and closes below 1919 it is very bearish with the next support only comes in at 1892 which was the low on August 7.
The S&P plan worked well yesterday as just as I posted the market was trading at my 1946 buy level and after nice rally to fill the gap left from Monday’s close I was able to cover this position at 1952 and I am now flat. I am very concerned at how easy the S&P broke and closed below the 1935/1940 support area as the market got hammered into the close. Today I will be a seller on any rally back to 1937/1943 with a 1946 stop. I will also be a buyer into last Thursday’s low at 1919/1923 with a 1916 stop. If I am taken long and subsequently stopped out I will be a very aggressive buyer on any further dip to 1892/1897 with a 1885 stop.
Euro/USD
No change as I am still long half of my position from last Monday at 12530. Yesterday, despite the very weak German economic data and downgrade to Euro-Zone growth from the IMF the Euro could not trade lower thus giving me more confidence that it can trade back to at least the 1.2750/1.2780 resistance level before we see sellers return to the market. Today I will raise my stop to 1.2580 on my long position and if I am stopped out of this trade I will again be an aggressive buyer from 1.2520/1.2550 with a 1.2490 stop.
US Dollar Index
The Dollar Index has had a nice sell-off since last Monday’s 86.80 high. I am still flat and I am not going to chase this market lower as I am short the Dollar already by being long the Euro. The first decent support for the Dollar comes in at 84.75 and today I will be a small buyer on any further dip to 84.80/85.10 with a 84.45 stop.
December DAX
The DAX plan worked well yesterday morning as the when I posted the Dax was trading at my 9110 buy level before having a nice rally which enabled me to cover this position at 9160 and I am now flat. Subsequently it was hammered very late in the trading session and then testing the 9000 support level this morning. Unlike the S&P, the Dax is very oversold and trading at the bottom of both its Bollinger Band and Williams Index whilst at the same time testing its 8995 low from August 7. For these reasons I will be a buyer from 9000/9030 with a 8980 stop. If I am taken long and subsequently stopped out I will be more aggressive buyer in front of 8905 which is the low from March 14 and I would expect a decent bounce to occur from this area.
December FTSE
I was lucky with my FTSE plan yesterday as shortly after I posted the market was trading at my 6480 buy level before following the Dax and S&P higher which enabled me to cover this position at 6510 and I am now flat. It was hard overnight with the market testing the next good support at 6420. The fact that the FTSE never got ahead of itself during 2014 when all the other major Indices were forging higher makes it very difficult for me to short the market. Today I will again be a small buyer on any dip to 6410/6430 with a 6385 stop.
Dow Rolling Contract
No change as I am still flat the Dow having been stopped out for a nice gain in my short position from last week. I have a very bearish outlook towards the Dow going forward and today I will lower my sell level to 16825/16855 with a wider 16905 stop.
December BUND
The Bund plan worked well yesterday as shortly after I posted it was trading at my 149.90 buy level. I am still long and I will raise my stop on this position to 149.80. The price action in the Bund is telling me that we are in for difficult times ahead especially with the price action so strong at a yield of just 85 bps for 10 Year Bonds.
Gold Rolling Contract
The Gold plan is continuing to work well with the market now well back above key resistance at 1200. I am still long from last Monday’s spike lower at 1187 and today I will raise my stop on this position to 1202. If I am stopped out of this trade I will be a more aggressive buyer in front of 1187 with a 1173 stop.
Silver Rolling Contract
No change as I am still long at 16.95 with the same 16.45 stop. So far Silver is lagging behind the recovery in Gold but with the Daily Sentiment Index reading is still in single digits and I would expect it to play ‘catch up’ with Gold over the coming days.
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