Signs of progress in U.S.-China trade talks sent Equity Markets to the biggest gain in a week and had Wall Street handicappers making odds on a bigger rally to come. The S&P 500 Index climbed to within 1.8% of a record after President Donald Trump said the two sides agreed to the outlines of a deal that could be signed as early as next month. The equity benchmark rose 1.1% Friday, closing off its session highs since several of the thorniest trade problems remain unresolved. Equities also got a boost from signs of progress in Brexit negotiations. At JPMorgan Chase & Co., strategists led by John Normand estimated there is 10% upside or more in the stock market under a “blue sky” scenario where agreements are reached in both cases, based on the way past geopolitical crises played out. Outstanding issues are likely to be resolved because a trade truce with China would strengthen Trump’s bid for next year’s re-election while both the U.K. and European economies are too weak for their leaders to accept a no-deal outcome, the strategists argue. They boosted the odds for an Oct. 31 Brexit deal from 5% to 50% amid news that U.K. Prime Minister Boris Johnson made a vital breakthrough in talks with Irish leader Leo Varadkar. Apple Inc., which sells millions of iPhones in China, rose to an all-time high. The Stoxx Europe 600 Index jumped the most since January. Crude oil surged following an explosion on an Iranian tanker and Pentagon plans to ramp up the deployment of U.S. forces to Saudi Arabia. UK Gilts tumbled and the Pound had the biggest two-day gain in a decade.
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While the strategists admitted details on the trade situation are “too scarce to rethink forecasts,” they urged investors to start positioning for a favorable outcome. Further progress is likely to revive risk appetite from investors who have sought shelter in fixed income and low-volatility stocks. There is still a peace dividend to be earned after this week’s moves, the strategists wrote in a note. “Geopolitics created a growth slump and sank asset prices and bond yields, so less uncertainty should drive a growth revival and market reversals, as long as valuations and positions do not already reflect positive outcomes.” If history is of any guide, they say, investors should brace for a rotation into Emerging Markets, cyclical and value shares while preparing for losses in assets such as developed market bonds, U.S. dollar and Japanese yen. Investors embraced the progress on trade talks after conflicting headlines roiled markets this week, even if the accord falls short of a comprehensive agreement that would put an end to the trade war.
The S&P 500 Index added 1.1% to close at 2970, well off its intra-day high of 2993.
The Stoxx Europe 600 Index surged 2.3%.
The MSCI Emerging Market Index climbed 1.8%.
The Shanghai Composite Index climbed 0.9%.
Here is a summary of the main changes in F.X. Markets:
The Bloomberg Dollar Spot Index dropped 0.5% to a two-month low.
The Euro increased 0.4% to $1.1046.
The British Pound jumped 1.8% to $1.2667.
The offshore Yuan climbed 0.4% to 7.0736 per dollar.
The Japanese Yen fell 0.4% to 108.43 per dollar.
The yield on 10-year Treasuries gained nine basis points to 1.75%.
Germany’s 10-year yield climbed three basis points to -0.45%.
Britain’s 10-year yield jumped 12 basis points to 0.70%.
West Texas Intermediate crude gained 2.3% to $54.80 a barrel.
Gold decreased 0.6% to $1,484.57 an ounce.
This morning on the Economic Front we have Euro-Zone Industrial Production at 10.00 am. Both the U.S and Canadian Markets are closed for Columbus Day and Thanksgiving respectively. However, the US Equity Markets will be open as usual.
December S&P 500
My S&P plan did not work well with the market trading the whole of my sell range for a 2974 average short position before stopping me out of this trade near the highs of the day at 2989. As I mentioned over the last two weeks it is almost impossible to have a ‘’Stop’’ in the market given the ferocity of the two-way movement in the market. Just to compound being stopped out of this position the S&P promptly sold off into its 2970 close. The bulls will be happy to see the VIX fall two points for a 11% move lower, closing below both its 50 and 200 Day Moving Averages at 15.98. The S&P has left a huge ‘’Open ‘gap’’ from Thursday’s 2938 Chicago close to Friday’s late 2963 low. Today I will be a buyer of the S&P from 2938/2953 with a 2928 stop.
I am still flat the Euro and today I will raise my sell level slightly to 1.1100/1.1160 with a 1.1205 tight stop. I will also raise my buy level to 1.0940/1.0980 with a 1.0895 stop.
December Dollar Index
I am still flat the Dollar and today I will again lower my sell level to 98.45/98.95 with a lower 99.45 stop.
With the prospects of a deal being agreed between the UK and Euro-zone the DAX led the European Markets to their largest one-day rally in over a year. The DAX closed over 12450 as yet again anyone trying to short the market are getting slammed. As I have said countless times the Central Banks will do everything in their power to prevent a crash. The DAX has now closed over its 50 and 200 Day Moving Averages and as a result I will now raise my buy level to 12270/12340 with a 12205 tight stop.
As expected the FTSE lagged the main European Indices after Pound had its biggest two-day rally in over 10 years. Today I will now raise my buy level to 7115/7165 with a 7080 tight stop. Despite the FTSE struggling I still do not want to be short the market at this time.
Dow Rolling Contract
My Dow plan worked well with the market trading higher to my 26915 average short position before selling off to my 26840 revised buy level shortly before the close. There is so much good news priced into the market which has rallied over 1000 points since the 26035 low early Thursday morning. Today I will again look to sell the Dow from 26995/27155 with a 27235 stop.
My NASDAQ plan also worked well with the market trading higher to my 7900 sell level before the market sold off to my 7840 revised T/P level shortly before the Chicago close on Friday and I am still flat. Today I will again look to sell the NASDAQ from 7920/7980 with a 8035 stop. I still do not want to be long the NASDAQ at this time.
The 30-Year U.S. Bond market has fallen five full points since last Wednesday as Yields rose 25 basis points. This is a massive move for the T-Bond and this sell-off saw the Bund fall nearly 300 points off its recent high. The Bund has strong support from 171.25/171.75 and I be a buyer on any dip to this area with a 170.80 stop.
Gold Rolling Contract
The Equity rally saw Gold trade the whole of Friday’s buy range for a 1480 average long position. As I did not want to have a long position over the weekend I emailed my Platinum Members to exit any long position at 1484.75 and I am now flat. Gold has now closed lower for five of the past seven weeks. Friday’s close was the lowest weekly close since the last week in July. Gold has strong support at 1459 which most hold or else we could a see an acceleration to the downside. Today my buy level will be from 1455/1465 with a 1447 tight stop.
Silver Rolling Contract
Shortly after the European Markets opened Silver traded higher to my 17.70 T/P level on my latest 17.50 long position and I am now flat. Today I will again look to buy the market on any further dip lower to 16.80/17.25 with a 16.45 tight stop. If I am taken long I will have a T/P level at 17.48.