US Tech shares rebounded after Wednesday’s worst selloff in a year and news that Senator McCain will support the Senate tax bill provided an additional boost to US equities. The latter was also the catalyst for 10 year US Treasury Yields to break above 2.40% after the PCE deflators came in line with expectations. In spite of underwhelming EU inflation data, month end flows and improved prospects of an Irish border agreement have helped the Euro and Sterling outperform. Lastly oil prices are steady after OPEC agreed to extend the production cut agreement through the end of 2018.
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For anyone following my Platinum Service it lost 154 points yesterday to close November with a gain of 823 points having made 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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Main European Equity Indices closed Thursday in negative territory with month end flows seemingly a factor at play. US Equities opened in positive territory and continued to march higher over the course of the session with news that Senator McCain would support the Senate Tax bill providing an additional boost at 5.00 pm with the Dow surging 200 points in less than an hour of trading. The Dow broke the 24000 mark for the first time ever and all three main equity indices (DJ, S&P500 and NASDAQ) ended the day firmly in positive territory.
US Treasury yields have also been the big movers with the curve bear steeping for a second day in a row. Core global yields found some support early in the London session with Bunds leading the way on the back of underwhelming EU inflation data. After misses from Italy and Spain, the EU headline inflation number came in at 1.5%, just under the 1.6% expected by the market. Meanwhile the core inflation also disappointed unchanged at 0.9% vs 1% exp. US data prints (core PCE as expected at +1.4% YoY, Personal Income stronger at +0.4% MoM, Chicago PMI stronger at 63.9 vs 63.0) had a small upward impact on Bond Yields, but the big catalyst came from news that senator McCain would support the Senate tax bill. UST yields jumped along the curve and the 10y note traded to an intra-day high of 2.4311% before settling around 2.41%.
In currencies the USD is little changed. It initially traded lower, but then the jump in UST yields helped reversed the initial move. Both Sterling and EURO are the G10 outperformers, the pound is up 0.87%, the pair traded to an overnight high of 1.3548 after news reports suggesting Dublin and London were close to reaching an agreement on the Irish border issue. News then followed suggesting an agreement was not as close as expected with cable now trading at 1.3521.
The disappointing EU inflation data saw the Euro trade to a morning low of 1.1809, but then month end flows appears to have been a factor for the rebound in the common currency. Another supporting factor came from unusual activity in the EU money market with the EONIA fix jumping higher towards the end of session closing at -0.241 from 0.301% in the previous session.
After yesterday’s better than expected CAPEX report and China official PMIs, the AUD continued to march higher in the early part of the reaching a high of 0.7594 around 3 am this morning. But then the big rise in UST yields which lifted the USD was too much for the Aussie. The currency fell 0.5% in two hours and has now has settled at 0.7563. In the end and relative to yesterday’s opening level, AUD is sharply unchanged.
OPEC members agreed in principle to keep output cuts through the end of 2018. , providing assurance for an oil industry still struggling through a fragile recovery. The world’s biggest oil-producing countries believe that a global oversupply of oil is still weighing down oil prices noting that oil in storage–a proxy for the global glut– remains well above historical averages. As a compromise to Russia’s concern for some flexibility Saudi Energy Minister Khalid al-Falih told reporters that he preferred an agreement that lasted all the way through 2018 but said any deal would be reviewed in June, when the cartel meets again.
This morning on the Economic Front we have German, Euro-Zone, UK and US Manufacturing PMI at 8.55 am, 9.00 am 9.30 am and 2.45 pm respectively. This is followed at 3.00 pm by US ISM Manufacturing and Construction Spending.
We have a number of Fed speakers today, namely Bullard, Kaplan and Harker at 2.05 pm, 2.30 pm and 3.15 pm respectively.
December S&P 500
In all my years of trading the equity markets, I cannot remember the last time that the Dow and S&P rose substantially only for both the FTSE and DAX to close lower and on the lows of the day. My S&P plan was correct yesterday except for the fact that after I went short at an average rate of 2641 I was stopped out of this position at 2553. Subsequently the S&P made another new all-time high at 2658.50 before getting hit for over 20 Handles into the close in what turned out to be my worst trading session in three months. For any member who used my ‘’5 Handle Rule’’ (which I did not myself) then having got stopped out earlier you would have been able to re-sell again at the same 2653 price before the market subsequently sold off. The past three days the S&P has gained over 2.5% on top of the 400 point gain that we have seen so far this year in what could be called ‘’panic buying’’. I still believe that given all the extreme sentiment on top of Wednesday’s huge reversal lower in the NASDAQ that we are in the final innings of this incredible bull market. For what it is worth bull markets tend to top on good news and not bad news. If the Republicans who are in the process of re-writing the tax bill mange to get this over the line the subsequent rally may be the final rally for this nine year bull market. The S&P has massive resistance from 2675/2700 and I will be a very aggressive seller on a gradual basis into this resistance zone. Short-term the S&P has resistance at yesterday’s high and today I will be a small seller on any further rally to 2652/2662 with a 2668 stop. I will now raise my buy level to 2605/2616 with a 2599 stop.
My Euro plan again worked well with the market trading lower to my 1.1815 buy level shortly after I posted yesterday before subsequently rallying 100 points and this move higher enabled me to cover my long position at my 1.1845 T/P level and I am now flat. The Euro is still a buy on dips and today I will again look to buy the market from 1.1835/1.1870 with a 1.1805 stop which is just below yesterday’s 1.1809 low print. I still do not want to be short the Euro at this time as I continue to look for a move higher to 1.2020 ahead of 1.2150/1.2200 and possibly 1.2800/1.3100 in 2018.
December Dollar Index
My Dollar plan also worked well with the market trading lower to my 92.70 before rallying 40 points and this move higher enabled me to cover my long position at my revised 92.89 T/P level and I am now flat. Today I will again look to buy the Dollar on any dip lower to 92.10/92.50 with a 91.75 tight stop.
Speaking of good news the DAX has so far had difficulty in breaking higher despite the string of strong economic data out of both Germany and the Euro-Zone over the past month. I am still flat the market and reluctant to chase the DAX higher despite the unbelievable strength of the US Indices. Today I will now lower my buy level to 12780/12840 with a 12740 tight stop. Despite my concerns for the DAX I still do not want to be short the market at this time.
The FTSE eventually traded lower to my 7320 buy level before having a small rally. As I did not like the price action and in trying to reduce some of yesterday’s loss I emailed my Platinum Members to exit any long position at my revised 7336 T/P level and I am now flat. The FTSE has strong support at 7250 and today I will be a buyer on any dip lower to 7215/7255 with a 7185 stop. Given the fact that we are at the start of a new month I do not want to be short the FTSE at this time.
Dow Rolling Contract
What can you say about the Dow which has now rallied over 700 points in a week as traders sell tech shares and move into the Dow especially financial stocks which have been the main benefit of the Dow’s relentless push higher. As I was already short the S&P, I waited to sell the Dow which I did at 24110 before getting stopped out of this position at my higher 24170 stop level and I am now flat. Subsequently the Dow rallied to a high at 24330 before selling off. However as I write this commentary we are back trading at 24300 again. Given how far we are trading outside the top of the Daily Bollinger Band and with the 14 day RSI trading over 83 it is extremely difficult to be long this market especially when you consider the bullish sentiment extreme. Today I will be a small seller on any further rally to 24430/24510 with a 24560 stop.
Unfortunately the NASDAQ just missed my 6390 sell level with a 6378 high print before having a nice sell-off and I am still flat. There is no doubt the Wednesday’s aggressive sell-off in the FANG stocks has to be respected as it is at least the third time since May that we have seen this lower price action on strong volume. Today I will raise my sell level slightly to 6410/6450 with a 6480 stop. I do not want to be long the NASDAQ at this time.
The Bund which traded higher to my initial 162.85 sell level before selling off small and I covered this position at my revised 162.77 T/P level and I am now flat. The 162.50 is the key pivot point for the Bund as a sustained break and close below here is a sell signal. However the Bund is back trading near 163.00 again this morning, ignoring the rise is US Treasury Yields. Today my only interest in selling the Bund is on a further rally to 163.30/163.65 with a 163.90 stop.
Gold Rolling Contract
I am still flat Gold and today I will now lower my buy level to 1256/1263 with a 1249 stop.
Silver Rolling Contract
After lunch I was finally stopped out of my long 16.87 position at 16.40 with the market just missing my second buy level at 16.25. I am not comfortable in being short and I re-bought the market at 16.41 with a 15.95 stop. My T/P level on this position will be 16.70.