It has been a quiet start to the week, but of note the US Dollar is slightly stronger across the board and commodities also had a good trading session. Higher US Treasury Yields have contributed to the USD outperformance and US equities managed to eke out another day of positive returns boosted by financial and energy shares. Meanwhile, US indices have now completely reversed Friday’s CPI decline with DXY comfortably trading back above the 93 mark (DXY +0.25% and BBDXY +0.33%). The USD has been supported by a combination of factors: concerns over NAFTA negotiations have weighed on CAD (-0.38%) and MXN (-0.77%), reports of a breakdown in UK-EU Brexit negotiations has ended Sterling’s five day winning streak (-0.38%) and after failing to clarify Catalonia’s position, Catalonia’s president, Carles Puigdemont, now has until Thursday to back down, alternatively the Spanish Government will move ahead with the process of suspending self-rule. The latest development has weighed on the Euro (-0.23%) and Spanish equities (IBEX 35, -0.75%).
To mark my 1450th 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 47 points yesterday and is now ahead by 334 points for October, having made 447 points in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 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 1600 points.
Somewhat puzzling, the AUD is the worst G10 performing currency over the past 24hrs, down 0.46% and currently trading at 0.7846. AUD underperformance has occurred despite the fact that risk sentiment has remained buoyant (VIX Index is below the 10 mark) and commodities had a decent session. One factor that could explain some of the AUD underperformance could be linked to the AU-US spread differentials. The 10y spread widened on Friday immediately after the soft US CPI print, but since then it has been on a steady narrowing trend, currently trading around 50.5bps, about 3 bps tighter relative to Friday’s peak.
Oil and copper are the stand out performers in the commodity space. The rise in WTI (0.8%) and Brent (+1.2%) has been associated with supply concerns amid rising tensions between Iraqi forces and Kurds. Meanwhile Copper rose above the $7000m/t mark and jumped 3.8% on the back of stronger than expected PPI figures from China. Nickel (+1.7%) and iron ore (0.7%) also had a good day, but soft commodities underperformed with wheat, sugar, cotton and coffee all down on the day.
10y US Treasury yields are currently trading just under the 2.30% mark after briefly trading above the figure overnight. Relative to Friday’s close 10y UST yields are up 2bps to 2.295% and the US 2-year rate closed up by 3bps to 1.525%. Price action in US Treasuries has been a little bit choppy amid speculative reports over the prospects for different Fed Chair candidates. Reports that John Taylor made a favourable impression on Trump saw US Treasury Yields trade higher, but then news that Trump will meet current Fed Chair Janet Yellen later this week weighed on 10y UST yields later in the day. Another factor playing into the higher US Treasury Yields theme could be linked to Fed Chair Yellen’s comments on Sunday that implied the weak inflation result had not changed her expectation of inflation picking up or her policy outlook.
This morning on the Economic Front we have UK CPI, PPI and the House Price Index at 9.30 am. This is followed at 10.00 am by Euro-Zone CPI and the German ZEW Survey Current Situation/Expectations. Next we have US Import Price Index at 1.30 pm and Industrial Production at 2.15 pm. Finally we have the NAHB Housing Market Index and the Total Net TIC Flows/Long Term Flows at 3.00 pm and 9.00 pm respectively.
December S&P 500
The US Indices again rallied yesterday but the advance again lacked conviction as shown by the NYSE advance/decline ratio which closed negative. Yesterday the S&P just missed my 2559 initial sell level with a 2557.75 high print before having a small sell-off and I am still flat. With the Dow having a late rally I will now raise my sell level in the S&P to 2561/2567 with a 2572 stop. I will also raise my buy level to 2538/2544 with a 2533 stop. Again in the event that we do get a surprise aggressive sell-off over the coming days, I will be an aggressive buyer on any dip lower to 2506/2514 with the same 2500 stop.
My Euro plan worked well with the Euro trading lower to my 1.0785 buy level before having a small 30 point rally and I used this rally to exit this long position at my revised 1.0804 T/P level and I am now flat. The Euro has gone nowhere over the past week in net terms. The Euro has support at 1.1750 ahead of strong support at 1.1670, a break and close which opens up the possibility of a larger correction. Today I will be a small buyer on any dip lower to 1.1720/1.1755 with a 1.1690 stop. I will also be a small seller on any rally higher to 1.1870/1.1910 with a 1.1940 stop.
December Dollar Index
No change as I am still a buyer on any dip lower to 92.35/92.75 with a 93.00 stop. Given the fact that I am bullish the Dollar, I no longer want to be short the market at this time.
I am still flat the DAX which tried to break 13,000 before having a small sell-off into the close. The DAX looks tired given its small rally over the past two weeks despite the weaker Euro. Today I will continue to be a buyer on any dip lower to 12860/12910 with a 12820 tight stop. I still do not want to be short the DAX at this time.
No change as I continue to refuse to chase this market higher and today I will leave my buy level unchanged from 7425/7460 with the same 7395 stop. The key resistance level as mentioned yesterday is the all-time high at 7585, a break and close above will keep the price action positive.
Dow Rolling Contract
My Dow plan worked well yesterday with the Dow trading higher to my 22945 initial sell level before falling 50 points. In keeping with my strategy of banking points for the least amount of risk I emailed my Platinum Members to exit any short position at 22925 or better especially as I had a higher sell level in the S&P. I am still flat and today with the next strong resistance for the Dow at 23010 and 23045. Today I will be a seller from 23000/23065 with a 24005 stop. I will continue to be an aggressive buyer on any sell-off to 22600/22670 with a 22540 stop. Despite the Dow rallying to a new all-time closing high, the McClellan Oscillator fell and closed barley in positive territory with a +6 print.
The NASDAQ traded in a narrow range yesterday and I am still flat. Today I will continue to be a seller on any rally higher to 6155/6200 with a 6235 stop. Meanwhile I am not going to chase this market higher and I will leave my buy level unchanged from 5975/6015 with a 5930 stop.
Despite the sell-off in US Treasuries, the Bund rallied strongly yesterday without hitting my buy level and I am still flat. Today I will now raise my buy level to 161.75/162.10 with a 161.45 stop.
Gold Rolling Contract
Gold fell shy of my sell range before selling off into the close and I am still flat. Today as I still do not trust this market will lower my buy level slightly to 1267/1275 with a 1260 stop.
Silver Rolling Contract
Silver rallied strongly yesterday to a 17.51 high print before selling off late in the US Trading session to my 17.15 buy level with a 17.11 low print. As I wanted to be flat overnight I covered this long position at my revised 17.23 T/P level and I am now flat. Silver has strong support at 16.90 and a break and close below here will be short-term bearish. In light of this support level I will now lower my buy range to 16.65/16.98 with a 16.40 tight stop.