U.S. Equity Markets rose, but closed sharply off their highs after Bloomberg News reported that the Trump administration is considering sanctions on Chinese officials, threatening to escalate tensions between the world’s two largest economies. The S&P 500 ended up 1.2% at an 11-week high, giving up in the final half hour of trading almost 50% of gains that topped 2%. Stocks had soared earlier as investors poured back into risk assets on speculation the worst of the economic hit from the pandemic has passed. Mega-cap tech shares in the Nasdaq 100 fell on the day, while chipmakers exposed to China tumbled at the end of the session. Traders spent much of the day pouring into riskier pockets of the market as they played catch-up to a rally that pushed socks higher by as much as 35% from March lows, even as news over the long weekend brought signs of mounting tension with China. That bid faded after the report that the Treasury Department could impose controls on transactions and freeze assets of Chinese officials and businesses for implementing a new National Security Law that would curtail the rights and freedoms of Hong Kong citizens. Fresh economic data had showed that the easing of lockdown restrictions is boosting economic activity. The contours of the gains, with small-caps and energy shares leading, suggest investors who doubted its staying power are now targeting areas that have lagged behind so far. Large-cap tech shares, the group that lifted stocks from pandemic lows, trailed Tuesday. While economic data is still awful by virtually any historic comparison, a consensus among investors is building that the worst from the pandemic is over, easing fear that the rally was a bear trap destined to come undone. Now they will also contend with an increase in China tension that could threaten trade at a delicate time for the global recovery. Elsewhere, the Stoxx Europe 600 Index advanced, with travel stocks surging on reports that Germany plans to lift travel warnings for 31 European countries. The U.K. also announced steps toward getting back to business, sending the Pound up by the most in almost a month. The Euro strengthened ahead of negotiations this week on the form of a bloc-wide recovery fund. WTI crude oil advanced to around $34 a barrel on hopes the market may rebalance after historic output cuts.
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Japan led the equity advance in Asia as the world’s third-largest economy reopened, and shares rose in Hong Kong, which showed signs of stabilizing after weekend unrest. Treasuries slid after the three-day U.S. weekend, alongside Germany’s government debt. While investors’ spirits are being lifted by economic reopenings, there are also mounting signs that Coronavirus infection rates are moderating. The Japanese government ended its nationwide state of emergency Monday, while Germany recorded a decline in the number of new virus cases. Signs that more euro area stimulus is on the way is also helping support the appetite for risk.
The S&P 500 Index added 1.2%, closing at a price of 2992.
The Russell 2000 rose 2.8% and the Dow Jones Industrial Average jumped 2.1%, closing at a new recovery high of 24,995.
The NASDAQ 100 fell 0.25%; closing at 9389.
The Stoxx Europe 600 Index climbed 1.1%.
The Nikkei closed 0.7% higher this morning at 21,419.
The MSCI Emerging Market Index surged 1.8%.
Here is a summary of the main Changes in F.X. Markets:
The Bloomberg Dollar Spot Index sank 1%.
The Euro rose 0.97% to $1.0991.
The British Pound surged 1.2% to $1.234.
The Japanese Yen strengthened 0.2% to 107.54 per dollar.
The yield on 10-year Treasuries added three basis points to 0.69%.
Germany’s 10-year yield climbed seven basis points to -0.43%.
Britain’s 10-year yield rose four basis point to 0.21%.
Japan’s 10-year yield rose one basis point to 0.008%.
West Texas Intermediate crude gained 2.1% to $33.93 a barrel.
Gold Futures weakened 1.6% to $1,725 an ounce.
This morning on the Economic Front we have no data of note from either the UK or the Euro-Zone. However, ECB president Lagarde speaks at 8.30 am, followed by ECB Member De Guindos at 10.30 am. At 12.00 pm we have the latest MBA Mortgage Applications and this is followed at 3.00 pm by the Richmond Fed Manufacturing Index. Finally, at 7.00 pm we have the Beige Book.
June S&P 500
My S&P plan worked well yesterday with the market trading higher to my 3017 sell level with a 3019.50 high print before selling off to my 3003 T/P level and I am now flat. So far, the July/October 2019 resistance area from 3020/3030 is holding. This morning the S&P is trading higher, above its 200 Day Moving Average (2999). Yesterday’s late sell-off to a low of 2981 in the June Contract has left a large ‘’Open Gap’’ from Friday’s Chicago close at 2949. Today I will leave my aggressive buy level from 2948/2963 basically unchanged with the same 2933 stop. I will be a seller from 3028/3042 with a 3055 stop.
I am still flat the Euro and today I will raise my buy level to 1.0880/1.0920 with a higher 1.0845 stop. The Euro has massive resistance from 1.1015/1.1055 where I will be a seller with a 1.1090 stop.
June Dollar Index
My latest 99.60 long Dollar position did not work well as I was stopped out of this trade at 99.15 and I am still flat. The Dollar has support from 98.20/98.70 where I will be a buyer with a 97.85 stop.
After I posted yesterday the DAX traded in a narrow range, The market held its gains despite the late sell-off in the US Indices and I am still flat. The DAX has support from 11300/11420 where I will be a buyer with a 11195 wider stop. I will now raise my sell level to 11680/11800 with a 11885 stop.
The 1.2% rally in the Pound stopped any rally in the FTSE yesterday and I am still flat. I am not going to chase the market lower and I will leave my 6170/6230 sell level unchanged with the same 6295 stop.
Dow Rolling Contract
My Dow plan also worked well with the market trading higher to my 25100 sell level with a 25176 high print. Having traded sideways near the highs for most of the session, a late sell-off saw the Dow hit a low of 24940. I used this move lower to exit my short position at my revised 25020 T/P level and I am still flat. This morning the Dow is trading 200 points higher at 25200. Worryingly for the Bears is the fact that the 200 Day Moving Average is 1100 points higher at 26305. The market may well target this area before Phase 2 of this incredible rally off the 18200 March 23 low is over. Given how overbought the Dow is at this time and the fact that we have short-term resistance from 25400/25600 where I will be a seller with a 25725 stop. The Dow has left a massive 400 point Gap to last Friday’s close. I will now raise my buy level to 24500/24750 with a 24395 higher stop.
Frustratingly the NASDAQ juts missed my 9620 sell level with a 9602 morning high before falling over 200 points into the close and I am still flat. I will now lower my sell level slightly to 9590/9740 with a 9805 stop. The NASDAQ has strong support from 9050/9180 where I will be an aggressive buyer with a tight 8985 stop.
No Change as I am still long from yesterday morning at 172.40. I will leave my stop unchanged at 171.95 while lowering my T/P level slightly to 172.70.
Gold Rolling Contract
My Gold plan worked well with the market hitting my 1705 buy level before rallying to my 1714 T/P level overnight and I am still flat. Gold has support from 1678/1688 where I will be a buyer with a 1669 tight stop.
Silver Rolling Contract
No Change as I am still a buyer from 16.30/16.70 with the same 15.95 stop.