U.S. stocks closed near session highs Wednesday amid light trading as investors awaited new developments in the increasingly unpredictable Sino-American trade war. Ten-year Treasury yields held steady after hitting a three-year low, while the US Dollar edged higher. The S&P 500 Index climbed for the second day in three as a rally in Texas crude pushed energy shares higher. With the exception of utilities, sectors across the benchmark registered increases, although trading volume was about 15% lower than average. President Donald Trump’s recent pronouncements on trade have left investors jumpy as they await his next moves and as optimism for a resolution becomes more difficult to sustain. With the latest round of tariffs from both sides due to be staggered from Sept. 1, China appears to be bracing for the worst and the U.S. leader’s credibility is becoming a key impediment to a deal. In addition, traders have to contend with Trump’s attacks on the Federal Reserve, which have clouded the outlook for monetary policy. In other news, British Prime Minister Boris Johnson’s move to suspend Parliament and come good on his promise to avoid any more delays to Brexit has set the clock running for his opponents to thwart him. The question is whether they can do it in time. In another dramatic turn of events in the U.K.’s three-year quest to leave the European Union, Johnson was granted permission by the Queen to “prorogue” the House of Commons, shutting down the debating chamber on Sept. 12 ostensibly so he can come back with a new legislative programme a month later.
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The S&P 500 Index rose 0.7% to close at 2888 having traded as low as 2851 shortly after the U.S Markets opened.
In Europe, Technology companies and insurers led a decline on the Stoxx Europe 600 index which ended the day 0.2% lower, while in contrast the U.K.’s FTSE 100 Index rose 0.4% helped by a weaker Pound.
Here is a summary of the main changes in F.X Markets:
The Bloomberg Dollar Spot Index gained 0.2% to a nine-month high.
The Euro dipped 0.1% to $1.1075, near two-year lows.
The British Pound slid 0.6% to $1.2213.
The Japanese Yen fell 0.4% to 106.19 per dollar.
Bond Yields were steady with most traders on vacation ahead of the Labour Day Long-Weekend. The Yield on 10-year Treasuries fell less than one basis point to 1.47% while the Yield on two-year Treasuries declined three basis points to 1.50%.
In Europe, Britain’s 10-year Yield fell a hefty six basis points to close at 0.44% and Germany’s 10-year Yield fell two basis points to -0.71%. Elsewhere, Italian benchmark Yields hit record lows as talks to form a Coalition Government progressed.
Crude oil extended gains after an industry report showed a bigger-than-expected drop in American crude inventories and as Iran all but ruled out a meeting with the U.S. West Texas Intermediate crude closed 1.8% higher at $55.94 a barrel.
Gold fell 0.2% to $1,538.99 an ounce.
This morning on the Economic Front we have German Unemployment at 8.55 am and this is followed at 10.00 am by Euro-Zone Economic Sentiment Indicator. Next, at 1.00 pm we have the very important German CPI, followed by U.S Weekly Jobless Claims, GDP and Wholesale Inventories at 1.30 pm. Finally, at 3.00 pm we have Pending Home Sales.
September S&P 500
The lack of liquidity has seen a huge surge in volatility over the past five weeks with the S&P having hit a high of 2899.50 on Tuesday, before turning around to hit a low of 2851.25 shortly after the U.S Markets opened yesterday afternoon. With all five of yesterday’s calls for all my Indices close to been in play following this move I unfortunately covered my 2855 long S&P position for a small gain at 2858.25 and I am now flat. With the S&P closing at 2888 hopefully you were able to have a higher exit level than me. As I have mentioned a few times over the past few days that this week is seasonally one of the strongest of the year. One worry for the Bears is the fact that we have an ‘’Open Gap’’ from the close on August 4 at 2954 and this coincides with the 62% retracement of the decline from the July 26 high. Today I will be a buyer of the S&P on any dip lower to 2863/2873 with a 2855 stop. I will now move my sell level higher to 2914/2924 with a 2931 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 2952/2967 with a 2976 stop. Just as I go press we have a headline out that China opposes an escalation of the Trade War. Markets are soaring on this news.
No Change as I am still a buyer on any dip lower to 1.1000/1.1040 with the same 1.0970 stop. I am still convinced that break into my buy area will be relatively brief as bearish sentiment is growing.
September Dollar Index
I am still flat the Dollar as I patiently wait for the market to hopefully trade higher to my 98.40/98.80 sell level. If I am taken short I will have a T/P level at 97.95. Meanwhile I will have a tight stop at 99.05 if executed.
Frustratingly the DAX just missed my 11550 buy level by a few points yesterday afternoon before rallying to close at 11700. I am not going to chase this market especially as we have the key German CPI at 1.00 pm and I will leave my 11470/11550 buy level unchanged with the same 11415 stop.
The FTSE also just missed my buy level before turning around on the Johnson announcement of closing Parliament for a month which saw the Pound fall 0.5%. Just like the DAX above I am not going to chase the FTSE higher as I believe all the bad news is in the price of Sterling and that it is only a matter of time before the Pound has a strong rally. Therefore I will leave my 6990/7030 buy level unchanged with the same 6965 stop.
Dow Rolling Contract
My Dow plan worked really well with the market trading lower to my 25650 buy level before rallying a huge 400 points into the close. Unfortunately as mentioned in my S&P commentary above as I had so many positions close to my buy level I exited this long Dow position for a small gain at 25690 and I am still flat. Today I will again look to buy the market on any dip lower to 25580/25730 with a 25495 tight stop. I will also raise my sell level to 26280/26430 with a 26505 stop.
My NASDAQ plan worked well with the market trading lower to my 7520 buy level before rallying to my 7550 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7450/7495 with a 7410 stop.
My loosing record in the Bund continues as shortly after I posted I was stopped out of my latest 179.05 short position at 179.35 and I am now flat. The Bund rolls to the December Contract next week and as my edge is not in this market at this time I am going to stay flat until the December Contract becomes the front month next week.
Gold Rolling Contract
While Silver made a new high yesterday, Gold did not despite the ongoing media frenzy about Gold. Regardless whether Gold rallies further from here, in my opinion current sentiment measures are compatible with a rally that is late in development. There is every chance that Gold could spike to my 1580/1590 resistance area first before reversing. Today I will leave my above sell level unchanged with the same 1599 stop.
Silver Rolling Contract
Silver’s spike to 18.74 is the type of behavior that occurs as the precious metals move into a price peak. Commodities top in the same manner. Stocks, on the other hand, rarely spike into a peak, but instead top out in a more rounded affair. The reason is that the emotion that propels precious metals and commodities to a high involves a good dose of fear; fear of shortages, fear of turmoil etc… Silver’s spike this week has been attended by a jump in the Daily Sentiment Index to 92% bulls, which is the highest level of bullishness since July 5, 2016 when we had a reading of 97%. The day after Silver spiked at 21.17, before declining 26% from that high to late December-2016. I am still flat Silver and today I will continue to be a buyer from 17.80/18.20 with a very tight 17.65 stop. If I am taken long I will have a T/P level at 18.45. Despite my above concerns about a topping market I am afraid to go short as Silver could easily spike a lot higher first before rolling over. The charts will tell us when this happens.