The FOMC meeting was the big event from yesterday’s trading session and as widely expected the Fed left the Funds Rate unchanged and made a small tweak to its balance sheet unwind guidance noting that a start should occur “relatively soon” rather than “this year”, as previously stated. Ahead of the meeting markets were essentially marking time, but reaction to the Statement has seen UST yields rally and a broad US Dollar sell off while US equities are essentially unchanged after a small initial dip. The Fed left the market with the scent that a rate hike should still be expected this year, but the lack of specific timing on it’s balance sheets plans and may be a small word change on inflation appear to have been the excuse for the move lower in UST yields and the Dollar.
To mark my 1375th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 54 points yesterday and is now ahead by 894 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.
Fed officials voted unanimously to leave the Funds Rate unchanged and noted that the balance sheet normalisation is expected to begin “relatively soon” (which replaced “this year”). To me this change in wording confirms my view that a balance sheet announcement should be expected in September, data dependent of course. The characterisation on inflation was mildly dovish, noting inflation is “running below 2%”where as previously it said “running somewhat below 2%”. But with wording on the inflation outlook unchanged along with upgrades on the assessments of the labour market and the economy, my read of the Statement is that the Fed remains intent on hiking one more time this year (likely December), contingent on the economy evolving as expected with upcoming inflation and labour market data releases the key variables to watch.
Ahead of the FOMC the USD traded in fairly tight range, but reaction to the Statement triggered a broad selloff with DXY (USD index) dropping 0.8% in a short space of time. Over the past two weeks the USD has been under pressure and the lack of clear guidance by the Fed appears to have provided an additional excuse to sell the greenback. Against this backdrop, commodities have enjoyed a bit of a resurgence and as such it is not surprising that commodity linked currency sit at the top of the leader today.
The mighty Australian Dollar has finally cracked the 80c mark and after initially trading to 0.8014, it has now settled just above the figure at 0.8005. Yesterday the AUD traded with a soft tone after a lower than expected headline CPI (although the core readings now are not that far away from the lower end of the RBA’s 2-3% inflation band) and a speech from Governor Lowe confirming the RBA is going nowhere for a while yet. As it has been the case for recently, AUD strength is largely a function of USD weakness.
The New Zealand Dollar is up 1.39% and is back trading above the 75c mark. Positive risk sentiment, higher commodity prices (including further gains in wholemilk powder futures), and a lack of jawboning for the RBNZ in yesterday’s speech from Assistant Governor McDermott already had the NZD in the ascendency. USD weakness was the cherry on the top and at 0.7517, the kiwi now trades at a new 23 month high.
10y UST yields traded to an intra-day high of 2.336%, but reaction to the Statement triggered a 4bps rally and now they trade at 2.29% while pricing for a 25bp hike at the December meeting is now at 42%, down from around 50%.
Commodities have continued to perform, oil prices are up over 1%, copper is +1.6% and iron ore is 1.4%. Meanwhile the VIX index has closed below the 10 mark (9.60) for a 10th consecutive day.
This morning on the Economic Front we have German CPI at 7.00 am and this is followed by Bank of England Credit Conditions Survey at 9.30 am. At 1.30 pm we have the US Weekly Jobless Claims, Durable Goods, Trade and the Chicago Fed National Activity Index. Finally we have the Bloomberg Consumer Comfort Index at 2.45 pm and the Monthly Budget Statement at 7.00 pm.
As for Fed news, Fed nominee Quarles testifies to the Senate Banking Committee at 3.00 pm.
September S&P 500
The S&P closed at yet another new all-time record high with the market now up an incredible 15 of the last 18 trading sessions. Meanwhile the VIX made a new all-time intra- day record low at 8.84 before reversing and closing at its highest level since July 19. I have been doing a lot of research on the VIX and one piece I came across highlights the incredible complacency that is present in the market with no volatility. I am going to post in full below as it describes the current situation perfectly.
VIX All-Time Lowest Close
All-time lowest VIX close was 9.31 on 22 December 1993.
So far there have been only 9 trading days when VIX closed below 10.
(Available VIX data history goes back to January 1990)
VIX All-Time Intraday Low
All-time lowest VIX intraday value was 8.89 reached on 27 December 1993.
This was the only day in history when the VIX was trading below 9.
There have been 18 trading days in history when the VIX was trading below 10 intraday.
10 Lowest VIX Closing Values in History
The following table shows 10 days with lowest VIX closing values:
|1||22 December 1993||10.03||10.03||9.28||9.31|
|2||23 December 1993||9.50||9.55||9.17||9.48|
|3||27 December 1993||9.50||9.79||8.89||9.70|
|4||28 December 1993||9.81||9.96||9.70||9.82|
|5||24 January 2007||10.41||10.41||9.87||9.89|
|6||21 November 2006||10.05||10.06||9.84||9.90|
|7||28 January 1994||9.86||10.31||9.59||9.94|
|8||20 November 2006||10.42||10.48||9.91||9.97|
|9||14 December 2006||10.74||10.75||9.64||9.97|
|10||16 February 2007||10.42||10.44||9.98||10.02|
You can see that all of them occurred either in December 2003 – January 2004 or in November 2006 – February 2007. These two periods have been the long-term lows in VIX, as you can see in the chart below:
It also appears that the VIX is now heading to another big long-term low, but of course no one can tell what the lowest value will be this time. You can also see that the periods of very low VIX can be very long (several years) and the mere fact that the VIX is 10, 11, or 12 does not necessarily mean that it must go up soon.
VXO (Old VIX) All-Time Low
Data for the VIX index is available starting from 1990, but big part of that was back-calculated, because the current VIX calculation method is used only since 22 September 2003. Data for the old method is still being published by CBOE under the symbol VXO. It goes back to 1986 and therefore provides a few additional years of history. You can see VXO chart below:
VXO all-time lowest close was 9.04 on 23 December 1993 (the same day as VIX all-time low).
VXO all-time intraday low was 8.86 again on 23 December 1993.
There have been 42 trading days when VXO closed below 10, 3 trading days when VXO was below 9 intraday, and 64 trading days when VXO was trading below 10 intraday. These numbers are higher than the corresponding VIX numbers, but the reason is not the longer VXO history (you can see in the chart above that the first VXO history years saw much higher values, including the super-spike on the Black Monday in 1987). The reason for higher number of extremely low values in VXO vs. VIX is simply different calculation of the two indices.
The fact that the VIX had an Upside KEY Day Reversal yesterday could be significant. I am still flat the market and today I will lower my buy level slightly to 2460/2466 with a 2455 stop. I will also lower my sell level to 2485/2491 with a 2497 stop. To me I it is only a matter of time before we get a sell extreme and maybe yesterday’s KDR in the VIX is the first warning shot.
Yesterday again proved why I always go flat into a major announcement as it takes away the ‘’event risk’’. Yesterday the Euro rallied in one red candle from 1.1630/1.1708 in the FOMC Statement release which put me short at 1.1700. As I was already long the Dollar Index I emailed my Platinum Members to exit this position at 1.1688 and I am still flat. The Euro closed over the March 2015 previous high at 1.1710 with a 1.1740 close. I still believe that based on sentiment the Euro’s rise in near an end but we may need to see the stock market roll-over first before this happens. The next resistance for the Euro is at the 500 Week Moving Average at 1.1800 and today I will again look to sell the Euro on any rally higher to 1.1780/1.1820 with a 1.1860 stop.
September Dollar Index
My long 93.85 Dollar position from last Friday worked well yesterday with the Dollar rallying to a 94.15 morning high and this move higher enabled me to cover my long position at my 94.05 T/P level. Subsequently I emailed my Platinum Members to re-buy the Dollar at 93.60. I am still long and will only add to this position on a move lower to 93.20 with a 92.95 tight stop.
The strength of the Euro is affecting the DAX which may sell-off today especially if the Euro stays or moves higher from current levels. I am still flat the DAX and I will now lower my buy level to 12050/12115 with an 11995 stop. Despite the negative price action I am not comfortable in being short the market at this time.
I am still flat the FTSE with my only interest in buying this market still on a dip lower to 7265/7305 with a 7235 tight stop.
Dow Rolling Contract
With the Dow rallying strongly ahead of the US open I emailed my Platinum Members to raise their sell level in the Dow to 21730. Subsequently as I wanted to be flat ahead of the FOMC Statement the Dow sold off to an initial 21703 low print which enabled me to cover this short position at my revised 21720 T/P level and I am now flat. Today I will again look to sell the Dow on any rally higher to 21760/21820 with a 21870 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally to 21860/21920 with a 21980 stop. The Bullish Percentage in the Weekly Investors Intelligence Advisors’ Survey has now pushed to 60.2%. This is the first reading above 60% since late-February, when the reading was 63.1%, which in itself was a thirty year high. For all these reasons I do not want to be long the Dow at this time.
Just before the close the Bund rallied to my 162.10 sell level. I am still short and will only add to this position on a further move higher to 162.50 with a 162.70 stop. I will now look to exit this short position at a price of 161.95 or better when the market opens at 7.00 am.
Gold Rolling Contract
Gold is still struggling to break the key 1255/1265 resistance level and I am still flat on what has been a boring market to trade all year given the sideways price action. I still do not trust this market and today I will only raise my buy level slightly to 1234/1242 with a 1226 tight stop.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 16.35 buy level before rallying to a 16.70 high post the FOMC Statement. As I wanted to be flat ahead of the release I covered this position at my revised 16.47 T/P level and I am now flat. Today I will now look to buy Silver on any dip lower to 16.30/16.60 with a 15.95 stop.