US stocks ended slightly lower on Friday in another choppy session, given thin trading, with the S&P 500 handing back over a percent of earlier gains in the last hour to close -0.12%. It still finished 2.86% up on the week, the first weekly gain for the Index in an otherwise brutal December for investors. Treasuries continued to rally, the 10yr a further ~5bps tighter on the prior session to 2.72%. This followed a tightening in Japanese government bond yields in the earlier Asian session, the 10 year yield falling below zero for the first time since September 2017. There was a good lead from the European session, though this a bit of ‘’catch up’’ after the significant turnaround in sentiment in the US on Thursday. The Stoxx 600 closed 2.02% higher, its largest daily gain since April, led by cyclical names and financials.
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Oil consolidated at current levels, both Brent and WTI crude firmer, the latter at just above US$45/b. Iron ore and copper were both up 0.3%, while Gold was up 0.4% to US$1283/oz.
The G10 were generally stronger against the USD; the AUD/USD up 0.3% to 0.7055 while the Euro closed at a six week high of 1.1450.
There were several data releases out of Japan on Friday. Tokyo CPI YoY for December of +0.3% fell short of expectations of +0.5%, though measures excluding fresh food (+0.9%) and fresh food & energy (+0.6%) were in line. The Job-To-Applicant Ratio of 1.63 was consistent with expectations, while the Jobless Rate again ticked higher to 2.5% (exp. 2.4%, Oct 2.4%), up from the recent cyclical low achieved in September of 2.3%. Finally, Industrial Production MoM for November of -1.1% (exp. -1.5%) marked the sixth contraction in the last eight months.
In the US, the Chicago Purchasing Manager (Dec) of 65.4 (exp. 60.2) was marginally softer on November’s 66.4. Pending Home Sales MoM for December of -0.7% (exp. +1.0%) was below expectations. Therefore, there was a further fall for the year on year figure, with Pending Home Sales NSA YoY -7.7% for December, down from the prior month’s (revised) figure of -4.7%.
Over the weekend, US President Donald Trump confirmed he had spoken at length with Chinese President Xi Jinping stating that ‘’big progress’’ was being made regarding a (trade) deal between the two countries. A later Wall Street Journal article reported that while both nations are working towards a deal, Trump may be overstating how close they are to an agreement.
In Europe, Italy’s populist government has passed its budget, with representatives in the lower house voting 313-70 in favour. The budget had previously been approved by the country’s Senate.
Elsewhere, UK International Trade Secretary Liam Fox stated, in a Sunday Times interview, that the UK’s chances of leaving the EU are 50-50 if the Parliament rejects UK PM May’s withdrawal agreement.
On the Economic Front we have no European Data today as most of Europe is closed until Wednesday. Meanwhile the US Commerce Department have stated that they will not publish any data while the US Government is in a partial shutdown.
March S&P 500
One of the best indicators that I follow is the McClellan Oscillator especially when it has a closing print of -250 or higher. On the Friday before Christmas the MO closed with a -300 print. We got a temporary rally off the initial 2365 low print shortly after the US Markets opened last Monday to a rebound high of 2410. Subsequently on the severe lack of liquidity and lack of bids in the market the US Indices got absolutely hammered into the last 30 minutes of trading with the S&P falling to close at price of 2344. As a result the MO closed lower with a -327 print. This setup the largest points movement ever in the Dow when the markets re-opened last Wednesday led by the S&P which closed 5% higher. Most of you probably did not trade on Wednesday but I could not resist especially as I had been stopped out of my 2392 S&P long position on Monday at my 2375 stop. There is no doubt the December has been the most volatile month for US Equity trading in points terms since the markets started to be measures in 1923. The VIX spiked to a high of 38 on Wednesday before closing on Friday below 30 at 28.60. The S&P will have initial resistance at 2532 which is the February low and really needs to close over this key resistance level for an attack on the recent 2600 breakdown area. I am still flat the market and today I will be a small seller on any further rally to 2532/2547 with a tight 2555 stop. The S&P has initial support at 2470 and today I will be a buyer on any dip lower to 2460/2475 with a 2452 stop. Remember Europe is closed today while all markets are closed tomorrow for the New Years Day Holiday.
On Friday the Dollar closed at a six week low with the Euro finally breaking closing above the key 1.1400/1.1430 resistance area. However so far we are not seeing any follow through which is no surprise as the Euro has traded in a very narrow range for most of the past four months. Shortly after I posted last Monday the Euro traded higher to my 1.1410 T/P level on my 1.1397 average long position and I am still flat. Today I will again look to buy the market on any dip lower to 1.1360/1.1400 with a 1.1315 stop.
March Dollar Index
The sell-off in the Dollar after I posted on Friday saw the market hit my 96.25 T/P level on my latest 96.50 short position and I am still flat. Today I will again look to sell the Dollar on any rally higher to 96.25/96.65 with a 96.95 stop.
The DAX is again closed today having traded higher last Thursday and Friday when the market re-opened on the back of the stronger US Markets. Normal commentary for the DAX will resume on Wednesday.
There is no doubt the fact that the FTSE is yielding over 4.5% saw some decent buying when the market re-opened on Thursday helped by the 5% rally in the US Indices. The FTSE closes at 12.30 pm today and just like the DAX above normal commentary for this market will also resume on Wednesday.
Dow Rolling Contract
My Dow plan worked well last Monday with the market trading lower to my 22050 buy level before rallying to my 22280 T/P level and I am still flat. The Dow has had a wild week with the market spiking to a low of 21700 before rallying to a rebound high so far on Friday at 23385. The market had a weak close on Friday by falling over 300 points in the last hour of trading but is opening higher this morning on the back of the Trump tweet of trade progress with China. If the Dow can build value and close over 23250 this evening then we should see a quick move higher to at least the 24000 resistance area. The Dow has support from 22750/22930 and today I will be a buyer on any dip to this area with a 22650 tight stop.
Frustratingly I was stopped out of my 6085 long NASDAQ position at 6005 last Monday and I am still flat. I know the market made a low 150 points lower than my stop but it is still annoying to see the market trading at 6350 this morning. The 6200/6250 area should now act as strong support on any subsequent sell-off and today I will be a buyer on any dip to this area with a 6145 stop.
As I mentioned last week normal service for the BUND will commence on Wednesday when the market re-opens.
Gold Rolling Contract
It is incredible that for the Fourth consecutive December we have had a large move higher in both Gold and Silver. Gold has now rallied over $70 off its early December low to currently trade at 1280. I am still flat and today I will now raise my buy level to 1250/1262 with a 1242 stop.
Silver Rolling Contract
My latest 14.65 long position worked well with the market trading higher to my 14.95 T/P level and I am now flat. This morning Silver is trading higher at 15.40 as it looks to take out its next resistance level at 15.71. Having spent so much time trading from 14.50/14.90 this area should now act a strong support. Today I will look to buy the market on any dip lower to 14.80/15.15 with a 14.45 stop. If I am taken long I will have a T/P level at 15.45.