Yesterday’s trading session was volatile with EU inflation jumping to a 4 year high of 2%, US Jobless Claims falling to a 44 year low of 223k and Snap, the parent company of message app Snapchat, rallying 41% on its first trading day. Meanwhile on the cold end of the spectrum, US Equities closed between 0.53% and 0.79% lower to record their biggest daily fall in a month with bank share leading the way. Most commodities also had a day to forget and although the US Dollar is stronger across the board, the Australian Dollar is the worst G10 performer, down 1.38%.
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For anyone following my Platinum Service it made 34 points yesterday but is still down 36 points for March, having made 1481 points in February, 1734 in January, 1351 in December, 1971 in November and 1582 in January. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.
After Fed Member Brainard’s speech yesterday, where she noted that a rate hike ‘will likely be appropriate soon’, last night Fed Member Powell added his voice to a growing choir of Fed officials who are suggesting a rate hike is imminent. Powel said that “I think the case for a rate increase in March has come together, and I do think it is on the table for discussion,”. Using Fed Funds Futures or OIS, pricing expectations for a March hike are now somewhere between the 80% and 90% mark, suggesting that extremely soft US Employment Report next Friday is probably the only obstacle that can prevent the Fed from hiking in two weeks’ time.
The record low Weekly Jobless Claims coupled with Powel’s comment helped UST yields continue their recent upward trend. After threatening a break below 2.30% last week, 10y UST yields are now trading at 2.49% and 2y UTS yields are at 1.31% after trading sub 1.15% last week. The move higher in yields appears to finally be weighing on US equities while at the same time is helping the USD to perform. As noted above the USD has continued its ascendency with NZD and AUD bearing the brunt of USD strength. AUD ‘s underperformance began yesterday after the softer than expected January Trade Balance (A$1.3bn vs A$3.6 exp.), but the move gathered momentum during the London session following a break below the 76c mark. The softness in commodities also didn’t help the AUD with aluminium, down 2.1% while oil fell 2% and Gold gave up 1.3%.
The EUR and GBP had modest falls against the USD with EU inflation a notable data release yesterday morning. Annual Euro area CPI inflation jumped to a 4-year high of 2%, while the core measure remained at 0.9%. Higher headline inflation is likely to see the ECB revise up its inflation forecasts, although soft core inflation helps justify its current QE programme. EUR is holding up close to 1.05 while Sterling has steadied over recent hours around the 1.2260 mark.
This morning on the economic front we have German, Euro-Zone and UK Services/Composite PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed by Euro-Zone Retail Sales at 10.00 am. Finally from the US, we have Services/Composite PMI at 2.45 pm and ISM Non-Manufacturing Composite at 3.00 pm.
Ahead of the pre-FOMC hiatus starting next week, Fed Mester is on the roster this afternoon followed by Fed Evans at 4.15 pm, culminating with Fed Vice Fisher and Chair Yellen speaking in New York and Chicago at 5.00 pm and 6.00 pm respectively. An affirmation by the latter two that a March hike is very much on the cards will confirm the consensus view that a soft NFP report next week is the only data release likely to stop the Fed from hiking this month.
March S&P 500
The S&P had its first meaningful fall yesterday in over a month with the market as expected trying to close at least some of the huge ”Open Gap” left from Wednesday’s 1.37% rise. This sell-off has continued overnight with the S&P trading below 2374 and some 28 Handles lower than the high made at 8.00 pm on Wednesday evening. The S&P has strong support from 2364/2370 and today I will be a buyer in this area with a 2359 stop. There is no way that the market is going to give up the huge gains witnessed over the past four months without a fight and my own view is that we will rally back close to Wednesday’s 2401.75 high or even break it before we finally see a meaningful sell-off. For this move higher I will be looking for a failing high which will give us a better opportunity with less risk in getting short. The S&P has further support from 2346/2352 and I will look to buy the market on any drop to this area over the coming days with a 2341 stop. I want to see how the subsequent rally plays out before looking to set up a short position from here especially as the last few Friday’s have started weak only to rally strongly into the Chicago close.
My Euro plan worked well with the market trading lower to my 1.0500 buy level yesterday afternoon before rallying to a 1.0528 high print. As I had already taken a small loss on the FTSE, I did not want to have a second consecutive trading loss and I covered this position at 1.0508 and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.0450/1.0490 with a 1.0420 stop. My only interest in selling the Euro is on a rally higher to 1.0620/1.0655 with the same 1.0690 stop.
March Dollar Index
Part of my reason in exiting my long Euro position was in anticipation of the Dollar hitting my 102.25 sell level which it did late in the New York trading session before trading lower overnight to my revised 102.02 T/P level and I am now flat. The Dollar needs to break its mid-January 102.45 pivot point to put the Dollar on a more stable footing and today I will again look to sell the Dollar on any further rally to 102.40/102.80 with a 103.10 stop. Today I will raise my buy level slightly to 101.10/101.50 with a 100.75 tight stop.
As expected the DAX found it difficult to break its 5.5 year trend line at 12145 at this first time of asking and I am still flat. Today I will leave my sell level unchanged at 12130/12180 with the same 12220 stop. The DAX has support at 11885/11940 and I will be a buyer in this area in the usual small size with a 11845 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 11810 with a 11760 stop.
The weakness in Sterling is preventing the FTSE to fall after it made new all-time highs following the break of the January high at 7292 on Wednesday. I was not comfortable in being short the market at 7340 and that is despite the FTSE trading at the top of its Bollinger Band and Williams Index and as a result I covered this position for a small loss at 7360 and I am now flat. Despite the US market getting hit yesterday and again overnight the FTSE is struggling to sell-off. Remember a market that does not fall when it should has to be respected. Today I will leave my buy level unchanged at 7290/7320 with the same 7265 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
Recently I have been comparing the recent Dow move to the 1999/2000 Tech Bubble. Yesterday it was reported that Wednesday’s 24 day 1000 point rally was only matched in 1999. Nobody likes to be off-side on a trade and I am no exception to this rule. Thankfully the Dow sold off yesterday with the McClellan Oscillator the clue that all was not well internally and the Dow is now trading some 210 points lower than the high made on Wednesday. Personally as I was so far off-side on my short 21058 Dow position I covered this position unfortunately too early at 21050 and I am now flat. The McClellan Oscillator closed weak last night with a -70 print. However just like my commentary in the S&P above I still believe that this market will rally first before we get a better chance to get short with less risk. If the Dow can close over 20950 this evening it will be positive. Today the Dow has strong support from 20840/20895 and I will be a buyer in this area with a 20775 tight stop. I do not want to be short the Dow at this time as I want to see if the same pattern plays out that has happened over the past few Fridays’ where the market opens weak only to rally into the close. March historically is one of the better performing months for the US stock market and is another reason why I am reluctant to go short here despite the severely overbought condition of the market.
My Bund plan worked well with the market trading lower to my 164.45 buy level before rallying over 164.80 this morning. In keeping with my theme of banking points when available I cut my long Bund position at 164.60 and I am now flat. Today I will again look to buy the Bund on any dip lower to 163.95/164.25 with a 163.65 stop. On Monday I will roll to the June Contract.
Gold Rolling Contract
It took a couple of days but the huge sell-off in Mining Stocks finally carried into both the Gold and Silver markets with the huge move lower witnessed in both metals over the past 48 hours. Thankfully we had no buy level in either commodity. Gold has minor support from 1212/1219 and today I will be a buyer in this area with a 1206 stop.
Silver Rolling Contract
We have had a huge run higher in Silver since going long at the end of December at 15.80 to Tuesday’s timely exit at 18.40 for a near 17% gain. Yesterday Silver got hit hard falling 4% but it was not a Downside Key Day Reversal as it did not break Tuesday’s 18.49 high print before getting hit. Silver has very strong support from 17.25/17.50 and today I will now look to buy the market on any dip lower to 17.30/17.65 with a 16.95 stop.