They are expensive! ….. This has been the mantra across all financial asset classes for months. However, periodically, markets get super worried and take profits and, in the process, they ignore any of the underlying macro data or evidence that the liquidity rug is not going to be pulled from under them soon. There is a concerted a move to unwind positions.
This is what happened yesterday. Equities began their sell-off in European periphery banks and spread across Europe and into the US. The small cap sector was the hardest hit in the US with the Russell 2000 under-performing which in turn drove Bond Yields lower and, despite the supposed ‘risk off’ tone, the US Dollar was also lower with EM Currencies stronger.
The economic data was, in fact, pretty good in terms of the US labour market and also showed pricing pressures. The JOLTS Job Opening Series rose sharply, back to levels not seen since 2007. So the unemployment rate is falling but the fact that there are more jobs on the market means that there is pressure on wage levels in order to attract people into the unfilled jobs. Similarly the NFIB Small Business Optimism Survey, whilst dropping on the headline showed labour market and price indicators rising. These measures are watched by the Fed and add to the evidence that their rhetoric needs to change in the coming months.
In the UK there was an unusually disappointing Industrial Production release which led to a large fall in the FTSE.
We have no economic data of note from either the UK or Euro-Zone today. At 12 pm we have US MBA Mortgage Applications while at 7 pm the Fed will release its Minutes from the June 17-18 FOMC Meeting.
September S&P 500
The S&P has not had three consecutive down days since the end of January and it will be interesting to see if we re enact this sequence today after it fell 0.7% yesterday following a loss of 0.5% on Monday. The reaction to the Minutes from the last FOMC Meeting will be crucial in testing the three day downward sequence as so far this year every dip has been bought by the market.
After I posted yesterday the S&P started to sell-off and after dropping down and hitting my 1963 buy level I was quickly stopped out of this position at 1957 and I am now flat. It made a new low at 1952.75 before the market stabilised and spent the rest of the session trading higher. Today I will lower my sell level to 1965/1970 in small size with a wider 1977 stop I will also be a small buyer on any dip to 1949/1953 with a 1945 stop.
Euro/USD
It was very interesting that the Euro could not follow the stock markets lower and in my view it is going to take a lot more than talking for Dragi and the ECB to drive this Euro south. When the equity markets started to sell-off and the Euro would not follow suit I covered my short 1.3610 position from Monday at 1.3600 and I am now flat. As previous stated, I am not comfortable being short the Euro as the price action is telling you the opposite. Today I will be a buyer on any dip to 1.3560/1.3590 with a 1.3540 stop. My only interest in selling the Euro will be on a rally back to 1.3670/1.3700 with a 1.3720 stop.
US Dollar Index
No change as I am still long from last Monday in small size at 80.30 with the same 79.70 stop.
September Dax
By the time I posted yesterday morning the Dax was in freefall and had traded through my buy level – I am still flat. This morning it is trading at the bottom of its Bollinger Band but not the Williams Index so it has room to fall further. Today I will lower my sell level to 9840/9870 with a 9895 stop. My only interest in buying the market is on a dip to 9695/9720 with a 9670 stop.
September FTSE
The FTSE was hit hard yesterday after the release of the disappointing Industrial Production data and after I bought the market at 6760 I was quickly stopped out of this position for a small loss at 6738 and I am now flat. Yesterday was another great example of how important it is to have stops in the market. I did not expect the FTSE to close below 6750 which is now potentially bearish going forward and could make today’s trading session very important in this regard. Today I will be a small seller on any rally back to 6715/6745 with a 6760 stop. I do not want to be long the FTSE at this time.
Dow Rolling Contract
Having nailed the top in the Dow last week at 17060 I should have held on to some of my short position instead of covering on Monday at 17010, especially given the fact that the Dow is overbought on a Daily, Weekly and Monthly basis. The FOMC Minutes release this evening at 7 pm will go along way to determine the next move. Today I will lower my sell level to 16970/17000 with a 17030 stop. I still do not want to be long the market at this time.
September BUND
After the equity markets started to sell-off yesterday the Bund began to rally and quickly stopped me out of my small 146.85 position at 147.30 and I am now flat. It is trading at new highs this morning as the price action, despite the ridiculously low yields, is still telling me not to be short the market. Today I will be a small buyer on any dip to 146.90/147.15 with a 146.70 stop. I do not want to be short the Bund at this time.
Gold Rolling Contract
No change as I do not want to chase the Gold market higher from here so I will still be a small buyer from 1305/1313 with the same 1299 stop.
Silver Rolling Contract
No change as I am still a buyer from 20.70/21.00 with the same 20.45 stop.
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