Yesterday was another day of ‘risk off’ for Equity markets but this time its was not the emerging markets that drove prices lower but the January ISM Manufacturing which came in well and truly shy of expectations. As newly sworn in Fed Chair Janet Yellen on her first day in the job was watching the economic data flow she would have seen the ISM data come in at 51.3 down from 57.0 in December and well short of the 56.0 expected and the lowest reading since last May.
The markets were already in tentative mood ahead of this release and just got slammed afterwards. European Equity markets closed down an average of 1.3% whilst the Dow fell another 2% and is now down over 1200 points or nearly 8% since the highs made on December 31. The S&P fell 2.3% while not surprisingly US Treasury Yields fell 10 bps to 2.59%. The VIX, having closed January, with its biggest ever increase for the start of a year rose another 16% yesterday to 21.44 which is the highest level in over a year as fear gripped the market. Currency markets ended the day mixed with the US Dollar surprisingly losing ground after the ISM release.
This morning on the economic front we have UK PMI Construction at 9.30 am followed by Euro-Zone PPI at 10.00 am. Later at 1.30 pm we have Factory Orders and the New York ISM. The Fed’s Plosser and Lockhart are both due to speak on the economy this afternoon at different venues and it will be interesting to see what they have to say after the weak ISM Report yesterday.
March S&P 500
The S&P having got some respite yesterday morning after the Chinese PMI data over the weekend just got slammed after the huge miss on the ISM at 3 pm. Today been a Tuesday is normally a reversal day and when we do get a rally whether it is today or during the week will be short and violent just like occurred on both Thursday and Friday last week. The fact the the S&P broke the key 1760 support level so easily yesterday is a worry going forward and this 1760 level will now be strong resistance. Yesterday was again another great example of how important it is to have stops in the market as after the S&P traded down to my 1761 buy level I was quickly stopped out of this position at 1755 and I am now flat. The S&P is now oversold on both a Daily and Weekly basis and is trading at the bottom of both the Bollinger Band and Williams Index. The next big support for the market comes in at 1725/1730 and below this at 1710. Today I will be a small buyer on any dip to 1728/1733 with a 1724 stop. If I am taken long and subsequently stopped out I will use my 5 handle rule to reset my position. (New Members please see this rule under the Education Tab) with a stop just below whatever low is put in. My only interest in selling the S&P today is on a rally to 1754/1759 with a 1762 stop.
Euro/USD
I am very surprised how strong the Euro is trading especially given how weak the stocks markets are and having gone short the Euro at 1.3540 I have decided to cover this position this morning at 1.3525 and I am now flat. It is now clear that the 1.3480 level is good support and today I will be a small buyer from 1.3490/1.3510 with a 1.3470 stop. I will also be a small seller on any rally to 1.3580/1.3610 with a 1.3625 stop.
US Dollar Index
Just like the Euro above I am very surprised that the Dollar Index has not rallied. I am still long from two weeks ago at 80.50 and I will leave my stop the same at 80.85 as I will give this position one more day to rally or else I will go flat.
March DAX
In contrast to the S&P above the Dax had a nice and quick rally having challenged the Friday lows before also getting slammed. The DAX traded down to my 9190 buy level before having this sharp rally enabling me to cover this position at 9240. The Dax then broke the key 9150 support level and is currently trading at the next support level at 9100. The Dax is trading at the bottom of the Bollinger Band and Williams Index and today I will be a small buyer from 9060/9085 with a 9035 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 8970/9000 with a 8950 stop. This 8980/9000 acted as good support in late November/early December.
March FTSE
I was very unlucky with the Ftse yesterday as the market traded down to my 6375 buy level before stopping me out of this position near the lows of the day at 6348 before the market rallied and I am still flat. The Ftse is oversold and is also trading at the bottom of the Bollinger Band and Williams Index. Today I will be a small buyer on any dip to 6330/6350 with a 6295 stop. Given how oversold the Ftse is trading I do not want to be short at this time.
Dow Rolling Contract
It is not very often that we see the Dow have a nearly a 400 point trading range but this is what happened yesterday. Long after I posted yesterday morning the Dow traded down to my 15610 buy level before very quickly stopping me out of this position at 15570 for a small loss. Yesterday was another great example of how important it is to have stops in the market as after I was stopped out the Dow fell another 240 points. The Dow has now lost over 1200 points in a month and is very oversold on both a Daily and Weekly basis. When we do get a rally it will be short and violent just like last Thursday and Friday. Today I will be a small buyer on any dip to 15300/15350 with a 15260 stop.
March BUND
I am glad I decided to stand aside in the Bund yesterday. The Bund is now very overbought and today I will be a small seller from 144.15/144.40 with a 144.60 stop.
Gold Rolling Contract
After I posted yesterday morning Gold started to rally and the market traded up to my 1262 sell level. I am still short and I will leave my stop the same at 1272 as I do not want to risk to much on this position.
Silver Rolling Contract
Finally Silver has started to rally. I am still long at 19.25 from last week and I will leave my stop the same at 18.80.
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