It has been a sea of red for equities in Europe and the US, mainboard European stocks down around 3% and the S&P 500 down over 3% at one stage before a late rally saw the market close just 0.40% lower. US energy stocks are again being beaten up with oil prices back down, WTI and Brent down by 2-2.5%, WTI mid-session flirting with $50/barrel again when prices were off by around $3/bbl after OPEC/Russia failed to cut a supply reduction deal. While yesterday’s session has definitely been ‘’risk off’’, the DXY has been losing ground even more so than the commodity currencies such as the AUD. From where I posted yesterday morning, the DXY is down 0.32% to 97.02, while the AUD is trading at 0.7234, benefiting a little late as US stocks have recovered some lost ground. Meanwhile the EUR/USD again failed a test of 1.14 to close at 1.1375.
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For anyone following my Platinum Service it made 307 points yesterday and is still ahead by 527 points for December, having made 1541 points in November, 2094 points in October, 1279 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Geopolitics and Oil
It has mainly been further weakness in oil and the news yesterday that Canadian authorities arrested the CFO of China’s hi-tech company Huawei, Wanzhou Meng, in Vancouver on December 1 that seems to have unsettled investors. (Having been such an unsettling year for investors, it would be entirely understandable that investors would have much less tolerance to letting bad positions run, but run with tight stop-loss positions on any signs of market fragility.) Not only is she the CFO, but the daughter of Huawei’s founder Ren Zhengfei and thought to be the next leader for the company.
Whether this arrest stymies next week’s US-China trade talks is unknown, but the arrest of a very senior officer in this prominent Chinese telecoms company raises for the market the importance of the issue in US-China geopolitical terms, given the prominence of Huawei in the US and global markets.
After a cut in OPEC+ oil production of around 1mb/day having been spoken of as a potential/likely outcome of the OPEC meeting yesterday, when news came through that an agreement could not be reached, oil prices weakened further. OPEC could not agree to a proposal from the Saudis that everyone cut production equally, while Russia also did not step up to the plate and also stand ready to cut. WTI flirted with $50/bbl during the session but it saw some support return on the release of a much larger than expected weekly drawdown in US crude oil inventories of 7.328mb against expectations of a 1.60 draw after last week’s 3.577mb addition.
US data points released and German Factory Orders’ did not play to the tune of a weakening economy on either side of the Atlantic. The most prominent US release was the ISM Non-Manufacturing Index for November that came in at 60.7, up from 60.3 and a consensus expectation of 59.0. The survey did report qualitative concerns about the potential impact of tariffs and trade tensions, but that theme was not evident in this data set. Nor was it in the Manufacturing ISM released earlier this week that was 59.3.
Also released, US Factory Orders were in line with expectations, down 2.1% against an expected 2.0% print, Jobless Claims were down marginally from 235K to 231K (they have been trending a little higher in recent weeks though), while the goods and services Trade Deficit was also almost bank on expectations. Still large at 55.5bn, the deficit was not materially different from the 55.0 consensus and up on slightly stronger imports, not usually seen as indicative of weakness. ADP Employment though as softer at 179K, down from 225K ahead of this afternoon’s payrolls but it has far from being regarded as the red-hot predictor of payrolls.
Bonds and Rates
With equities in the red, bonds have accumulated more support, US 10y Treasuries down below 2.9%, after having tested above 3.20% only last month. The market is still tilted to expect the Fed to hike again at its December meeting, though the probability has been scaled back somewhat, but more so for 2019 expectations, the market now pricing little more than one rise for 2019.
Oil accumulated most of the attention over the past 24 hours. Base metals were softer, gold was steady, while the bulks were also softer yesterday, though coal prices remain elevated.
This morning on the Economic Front we have German Industrial Production at 7.00 am and this is followed at 9.30 am by UK Consumer Inflation Expectations. Next at 10.00 am we have Euro-Zone GDP and Employment Change. At 1.30 pm all eyes will turn to the US NFP Report. On payrolls, there is fair chance of upside risk to average hourly earnings from 3.1% to 3.2%, an unchanged unemployment rate of 3.7%, but downside risk to payrolls growth from jobless claims starting to rise, mixed news for the USD, but not a friendly combo for stocks. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment and Wholesale Inventories.
Meanwhile the Fed’s Brainard will speak on the economy at 5.15 pm.
December S&P 500
Another wild ride for the S&P with the market trading to an intra-day low of 2621.50 before rallying over 70 Handles into the close. Yesterday’s low was nearly 200 Handles below the high made last Monday morning. After the S&P hit my initial 2650 buy level the market rallied to my revised 2657 T/P level. Subsequently I emailed my Platinum Members to re-buy the S&P on any dip lower to 2631 with a revised 2644 T/P level and I am now flat. Yesterday’s low was just above my aggressive buy level from 2585/2615 thus showing how key this support range is. As I have mentioned over the past month a break and close below here for at least two weeks will signal that we finally have a long-term top in the market. Today I will be a small buyer on any dip lower to 2648/2663 with a 2638 stop. My only interest in selling the S&P is still on a rally higher to 2738/2753 with a higher 2761 stop. Again if I am taken long and subsequently stopped out I will continue to be an aggressive buyer on any plunge lower to 2585/2615 with a 2570 stop.
I am still flat the Euro and today I will now raise my buy level to 1.1270/1.1315 with a 1.1235 stop. The Euro has initial resistance from 1.1410/1.1450 and a break and close above here this evening in New York will see me move my buy level higher next week.
December Dollar Index
No Change as I am still a seller on any rally higher to 97.40/97.75 with the same 98.05 stop.
The DAX got hit hard yesterday before recovering some of its losses in the after-hours trading which saw a rally of 150 points. After the DAX hit my average buy level at 10925 I emailed my Platinum Members to exit any long position at a price of 10940 and I am still flat. I did not expect such an aggressive move lower yesterday especially with the Euro still soft. However Bund Yields are not near record lows for nothing as this is certainly indicating a dramatic slowdown in the Euro-Zone Economies. Today my only interest in buying the DAX is on dip lower to 10720/10800 with a 10650 wider stop. Despite the negative price action I still do not want to be short the market at this time.
The FTSE fell 3.58% lower yesterday to register its lowest close in over two years. After the Cash FTSE closed on the lows of the day the Futures market rallied into its 9.00 pm close. At yesterday’s low the market was trading well outside its Daily Bollinger Band and at the bottom of its William Index signaling that we may have put in a temporary bottom. I am still flat having stayed out of the market yesterday and today I will be a buyer on any dip lower to 6660/6710 with a 6610 wider stop. Given how oversold the FTSE is trading I do not want to be short the market at this time.
Dow Rolling Contract
What a past 8 weeks for Dow trading. This market reminds me of the Italian Bond Market back in the 90’s given the massive intra-day movements in this market where you have to trade in small size with very wide stops. My Dow plan worked well with the market trading lower to my 24570 buy level before rallying to my 25650 T/P level and I am now flat. Subsequently the Dow fell another 400 points before rallying over 700 points into the close. The Dow has massive support from 24150/24350 and I will be an aggressive buyer on any dip to this area with a 23950 wider stop. Given how oversold the Dow is trading I do not want to be short the market at this time.
The NASDAQ just missed my 6870 initial sell level with a 6840 high print before having a small sell-off so far this morning and I am still flat. Today I will leave my 6870/6940 sell range unchanged with the same 7005 stop. My only interest in buying the NASDAQ is on a plunge lower to 6540/6480 with a 6420 stop. A break and close below 6400 opens up the possibility of a move lower to the 6050/6100 next major support level.
Late yesterday the Bund traded higher to my 163.55 sell level. As I did not want to have a short position overnight I covered this trade at my revised 163.43 T/P level and I am still flat. With Bund yields close to record lows it just shows how weak the Euro-Zone Economies are at this stage. The Irish Stock market is now down over 22% for the year to date. Today I will again look to sell the Bund on any further rally to 163.80/164.20 with a 164.55 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1214/1223 with the same 1207 stop.
Silver Rolling Contract
I am still long the market at 14.45 with the same 14.60 T/P level and 13.95 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.