The US Dollar is now up on the year thanks largely to Euro weakness, the latter despite strong and better than expected Euro-Zone Confidence readings. Bonds essentially flat, UST 10s holding just beneath 2.5%; fresh highs for S&P and NASDAQ (but not the Dow) in front of US earnings season that kicks off in earnest on Thursday and US CPI (Friday).
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For anyone following my Platinum Service it made 12 points yesterday and is now down 23 points for the month of January, having made 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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Yesterday the AUD/USD was the underperforming G10 currency in the London session, but essentially flat-lined since on low volume. This weakness was usurped by European currencies, led by EUR (-0.56%) and SEK (-0.66%). The Euro move has helped push the DXY Dollar Index up just over 0.4%. At 92.35, it has now more than recouped last week’s losses to stand 0.5% up YTD.
There is no catalyst for Euro weakness, indeed the raft of Euro-Zone sentiment survey indicators, covering economic, industrial and services sector confidence, as well as the overall business climate and the Sentix investor confidence reading, all posted gains in December and in all cases exceeded expectations. This perpetuates the sense that the synchronized global upswing story is as much or more – a European as US-led affair. Consumer confidence in contrast was flat (though as expected) while EZ Retail Sales expanded 2.8% in the year to November up from a downward revised 0.2% in October.
Sterling bucked the trend elsewhere of European currency weakness, some support seemingly drawn from UK PM May’s announced cabinet reshuffle (but which leaves all incumbent senior ministers in place). The pound has (so far) suffered little ill-effect from yesterday’s reports that May is considering appointing a Brexit minister for no (trade).
We had a fair bit of Fed-speak, including incoming FOMC-voter Raphael Bostic (Atlanta Fed) who says that in order for him to back three or four rate increases he would need to see the inflation numbers start to move more in line with my expectations. Bostic says his base case is two to three rate hikes this year, with the data guiding how aggressively the Fed moves on policy. On potential yield curve inversion, Bostic says ‘’If we got close to it, I would argue we should be extremely cautious’’
Boston Fed President Eric Rosengren said in materials prepared for a conference on inflation targeting that he would prefer adopting an inflation range, rather than a precise target as the Fed currently does, because a range would give the Fed greater flexibility to allow for higher or lower inflation depending on how the economy is performing.
Meanwhile late yesterday evening Bloomberg reported a White House official, speaking on condition of anonymity, saying that the administration is ‘’very close’’ to announcing its pick for Fed vice-chair (no name mentioned).
This morning on the Economic Front we have German Industrial Production and Current Account at 7.00 am. This is followed at 10.00 am by the Euro-Zone Unemployment Rate and the US NFIB Small Business Optimism at 11.00 am. Finally at 3.00 pm we have the JOLTS Job Openings and Fed Member Kashkari who is speaking on a Moderated Panel on the Economy.
March S&P 500
The S&P made yet another new all-time record close as the market rose for the fifth consecutive trading session of the year so far. Every single ‘’class’’ of investor is wildly bullish, while Institutional Managers hold record low levels of cash relative to equities in their portfolios, as the number of bullish investment advisors rises to the highest in the last 30/40 years. Meanwhile Mutual Fund Investors have poured a record amount of money into bull mutual funds relative to bear mutual funds as equity speculators borrow to buy stocks. Finally the Daily Sentiment Index reading has risen to 95% which is the highest optimism in 11 ½ years. I have no doubt that based on all of the above a historic top in the US stock market is close. I am currently in Florida and there was a piece in my local newspaper yesterday saying that despite the really strong economy, wages in Florida when adjusted for inflation are flat for the past 13 years to 2005. One indicator that has worked for me over the years is the DSI Sentiment Reading and with this now printing 95% we have to be on alert for a major shake-out in the market. I am still flat the S&P and I will now lower my sell level to 2752/2760 with a 2767 stop. Meanwhile I will leave my buy level unchanged from 2717/2724 with the same 2711 stop.
The Euro traded lower to my 1.1980 buy level shortly after lunch yesterday and has basically traded sideways since. I will only add to this position on any move lower to 1.1940 with the same 1.1915 stop. Meanwhile I will leave my T/P level unchanged at 1.1995 and if either of these scenarios play out I will be back with a new update for my Platinum Members.
March Dollar Index
Unfortunately the Dollar just missed my 91.55 buy level after I posted early yesterday morning before rallying as expected and I am still flat. Today I will now raise my buy level to 91.45/91.80 with a 91.15 stop.
No change as I am still flat as the market again consolidated over the key 13200/13300 support level. I am not going to chase this market higher and I will leave my buy level unchanged from 13180/13240 with the same 13130 stop.
Late in the European trading session the FTSE finally traded lower to my 7630 buy level. As I wanted to bank some points for yesterday’s trading session I emailed my Platinum Members to cover any long position at 7642 or higher and I am now flat. With Sterling struggling to rally at this time I will again look to buy the market on any dip lower to 7570/7610 with a 7540 stop. The 7580/7600 is good support and should see an initial rally on any test of this area.
Dow Rolling Contract
Finally we saw the Dow struggle relative to both the S&P and NASDAQ yesterday as the market failed to close higher for the first trading session this year. I am still flat and will continue to be a buyer on any dip lower to 24990/25100 with the same 24940 stop. Given the increased volatility I am going to leave my sell level unchanged from 25450/25540 with a higher 25620 stop.
The fifth consecutive higher close for the NASDAQ carried prices to a new all-time high today. Just like the S&P above the Daily Sentiment Index has jumped to a 94% bullish reading which is similar to the S&P in that it is the most extreme trader optimism in 11 ½ years. The NASDAQ has strong resistance at 6740 and today I will continue to be a seller on any rally higher to 6710/6760 with a 6805 stop.
The BUND continues to trade sideways despite the strong German Indicators yesterday. I am still flat and I am not going to chase this market lower and will therefore leave my sell level unchanged from 162.35/162.75 with the same 163.05 stop.
Gold Rolling Contract
Gold again traded sideways yesterday and I am still flat. I will leave my buy level unchanged from 1294/1302 with the same 1286 stop.
Silver Rolling Contract
Silver eventually traded lower to my 17.10 buy level. One worry for the Silver bulls is the Commitment of Traders Managed Money Accounts are starting to reverse their record net-short position in Silver Futures and Options. As a result I will now lower my T/P level on this position to 17.20. I will leave my stop unchanged for the moment at 16.45 and if I manage to cover this position at 17.20 I will be back with a new update for my Platinum Members.