Yesterday’s trading session was marked by a mild bounce in the US dollar into the end of the month, amid encouraging signs that this afternoon’s US GDP might yet be a mild overshoot, but against the ever-present continuing saga that is Washington and the Congress. Some backtracking from Wednesday’s over-reaction has played out too. After testing well above the 80 figure yesterday, the AUD lost momentum into the London session as the USD recovered some of its mojo, the AUD/USD trading back down below the figure, currently around its session lows at 0.7965/70. Commodities have been mixed, there’s been little change in base metals (nickel has been the exception, up another 0.9%), iron ore is off marginally, gold up by $8.70/oz to $1264.40, while oil has made some further gains. The Euro and Sterling are also weaker since I posted 24 hours ago, the latter even after a stronger than expected UK CBI Retailers Survey reported a notable pick-up in sales.
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For anyone following my Platinum Service it made 111 points yesterday and is now ahead by 1005 points for July, having made 1023 points in June, 1071 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
WTI closed up another $0.42, Brent a little more, WTI now with a 49 handle, now perhaps with a tad more optimism that OPEC’s job cutting supply could yet have a little more teeth. Kuwait joining Saudi Arabia in pledging cuts with the UAE supported sentiment. The decline in US inventories to the lowest level since January reported this week has also done the oil price no harm. Structurally, longer term, there is a lot more to play out on the global supply and demand side, but for now it’s getting some support.
Taking some profits toward month end seemed to have played some part in stabilising US Dollar sentiment, and the data reads yesterday also added a modicum of support, kicking the dollar higher. There is also the recognition that given the Fed has decided to push on with normalising its balance sheet and the ever so slight change to characterising inflation in Wednesday’s Statement, it was a surprisingly large/overdone fall in the US dollar especially when you consider how low the Daily Sentiment Index reading had fallen over the past 10 days. The Fed would not be signalling that it’s their intention to proceed with normalising the balance sheet if they were concerned about the outlook.
On the data front, it was the combination of a somewhat better than expected Durable Goods Orders report for June (upward revisions helped), a lower than expected advance US Goods Trade Report, and higher than expected Wholesale Inventories adding to recent growth sentiment. The Atlanta Fed increased its estimate of GDPNow for Q2 growth (out tonight) from 2.5% to 2.8%. Better than expected inventories seems to have done the trick, whatever higher inventories might signal about sales. Meanwhile US bond yields have ticked a little higher at the long end, almost steady for shorter term tenors.
If the US Dollar had taken its lead from developments in Washington, it would have been unhelpful, again. The debate in the Senate over Obamacare continues with no clear end point in sight. Full repeal is off the agenda and what form agreed legislation might take with now a myriad of as yet to be determined amendments is also unknown. The market is also aware that repeal of Obamacare was intended to save money for the US Treasury, a revenue hole that doesn’t look likely to be filled anytime soon.
Adding to that hole, a statement last night from the so called “Big six” (House Speaker Ryan, Senate majority leader Mitch McConnell, White House Economic adviser Gary Cohn, Treasury Secretary Steve Mnuchin, Republican Ways and Means Committee Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch) have buried the border tax, a tax that was intended to raise $1tr in revenue over a decade to help finance tax cuts.
This morning on the Economic Front we have Euro-Zone Business Climate Indicator at 10.00 am. This is followed at 1.00 pm by German CPI. Next at 1.30 pm we have US GDP and the Employment Cost Index. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment.
Later the Fed’s Kaskari speaks at a Townhall Event at 6.20 pm.
September S&P 500
It was incredible that having written at length in relation to the VIX in yesterday’s commentary that we would have the widest trading range in many weeks as volatility finally picks up. The S&P which just missed my 2485 sell level with a 2480.50 high print before falling over 23 Handles to a 2457 low before recouping half of these loses in the last hour of trading. The sell-off saw the S&P hit my 2463 average buy level before rallying back above 2471. I was nervous given the reversal in the NASDAQ which was the largest since June 9th and I emailed my Platinum Members to exit this position at 2464.50 and I am now flat. There is no doubt traders are nervous as we approach the generally negative August and September time frame as these two months have seen stocks fall over the past few years. There is a chance that the S&P may hit 2500 and the Dow to 22,000 before we finally see a more lasting sell-off. I am not so sure and today I will now lower my sell level slightly to 2480/2486 with a 2491 stop. Given the importance of today’s GDP number I will only be a buyer of the S&P on any dip lower to 2452/2458 with a 2447 stop. The 2450 is important support and should see the market rally on any initial test of this area.
Really frustrating as the Euro missed my 1.1780 sell level with a 1.1777 high print before the Euro fell 125 points and I am still flat. There is no doubt there is huge resistance at the 500 Week Moving Average at 1.1800 as mentioned yesterday. Today I will lower my sell level to 1.1725/1.1775 with a 1.1810 stop. Given the size of yesterday’s reversal I do not want to be long the Euro at this time.
September Dollar Index
My Dollar plan worked really well yesterday as the Dollar traded to my second buy level at 93.20 with a 93.00 low print before rallying 100 points. After the first rally I emailed my Platinum Members to exit the 93.20 second long position at 93.53. This meant I was still long my original 93.60 position from post the FOMC Statement on Wednesday and I covered this position at my next T/P level at 93.80. Finally I emailed my Platinum Members to buy the Dollar again at 93.70 before exiting this latest position for a small gain near the close at 93.78 and I am now flat. Given the size of the Dollar reversal yesterday there is a fair chance that we may finally have reached at least a temporary low especially with the DSI reading in single digits. Today I will again look to buy the Dollar on any dip lower to 93.25/93.60 with a 92.90 stop.
The DAX led the stock markets (with the exception of the Dow) yesterday and I am still flat. Today I will lower my buy level slightly to 12040/12100 with the same 11990 stop.
I am not going to chase this market higher and today I will leave my buy level unchanged from 7265/7305 with the same 7235 tight stop.
Dow Rolling Contract
Yet again the Dow was the star performer as despite what happened to both the NASDAQ and S&P, the Dow closed at a new all-time high. This is another sign of intra-market negative divergence between the main US Indices. Yesterday my Dow plan worked well with the market trading higher to my 21770 sell level before eventually having a 70 points sell-off which enabled me to cover my position at my revised 21750 T/P level and I am now flat. Today I will again look to sell the Dow on any rally higher to 21860/21930 with a 21990 stop.
My short 162.10 Bund position worked well but you had to be quick as the market traded lower to my 161.95 T/P level on the open before trading higher and I am still flat. Today I will again look to sell the Bund on any further rally higher to 162.55/162.90 with a 163.20 stop.
Gold Rolling Contract
I still do not trust this market given its lack of volatility which is strange when you see how weak the Dollar is trading. Today my buy level will remain unchanged at 1234/1242 with a 1226 stop.
Silver Rolling Contract
Very late in the New York session Silver traded lower to my 16.60 buy level. Given the huge move higher from the July 10 low at 15.17 I am not as bullish of Silver as the market is overbought. Today I will only add to this position on any move lower to 16.20 while my T/P level is now reduced to 16.70.