U.S. Equity Markets tumbled on concern tensions with China are escalating just days before high-level talks between officials from the world’s biggest economies. Chipmakers led the S&P 500 Index to a 1.6% loss and Chinese companies that trade in New York sank to the lowest level since mid-August as the Trump administration put visa bans on Chinese officials linked to the mass detention of Muslims in Xinjiang province. That came after China said it strongly opposed a U.S. move to blacklist some of its technology firms and Bloomberg reported the White House is moving ahead with discussions about restricting capital flows to China. The flare-up overshadowed comments by Federal Reserve Chairman Jerome Powell that the Central Bank will seek to calm money markets while leaving his options open on Interest Rates weeks ahead of policy makers’ next meeting. Ten-year Treasury yields fell below 1.55% and the US Dollar rose. The U.K. stepped up preparations for a no-deal Brexit in three weeks’ time as negotiations with the European Union headed toward a breakdown. In a call on Tuesday morning, Boris Johnson told German Chancellor Angela Merkel a divorce agreement is essentially impossible if the EU demands Northern Ireland must stay in the bloc’s customs union. Johnson spoke later to Irish Prime Minister Leo Varadkar and the two agreed to meet for talks before the end of the week.
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The escalation in tension between the U.S. and China comes just days before senior representatives will resume their effort to resolve a protectionist dispute that has roiled markets for more than a year. People’s Bank of China Governor Yi Gang will join Chinese Vice Premier Liu He at the talks in Washington and a report from China’s Global Times said that the full delegation is “one of the largest and broadest teams.” China is still the overhang that’s going to be the most important. Even though we have the talks this week, it seems hard to believe they’re going to come out on Friday afternoon and be like, ‘Alright, we’ve done it! It’s over!’”
The S&P 500 Index fell 1.6% to close at 2893.
The Dow Jones fell 315 points to close at a price of 26,164.
The Stoxx Europe 600 Index sank 1.1%, after two days of gains
The MSCI Asia Pacific Index increased 0.4%.
The MSCI Emerging Market Index fell 0.2%.
Here is a summary of the main Changes in F.X. Markets:
The Bloomberg Dollar Spot Index rose 0.1%, shrugging off data that showed a measure of underlying U.S. Producer Prices posted the biggest monthly drop in more than four years.
The Euro fell 0.2% to $1.0953.
The British Pound declined 0.6% to $1.2221 after Boris Johnson told German Chancellor Angela Merkel a Brexit deal is essentially impossible if the EU demands Northern Ireland stay in the bloc’s Customs Union.
The Japanese Yen strengthened 0.1% to 107.11 per dollar.
The yield on 10-year Treasuries decreased three basis points to 1.53%.
Germany’s 10-year yield dipped two basis points to -0.6%.
Britain’s 10-year yield declined three basis points to 0.41%.
Gold increased 0.9% to $1,506.14 an ounce.
West Texas Intermediate crude fell 0.8% to $52.32 a barrel.
This morning on the Economic Front we have no data of note from either the Euro-Zone or the UK. At 12.00 pm we have U.S MBA Mortgage Applications and this is followed at 3.00 pm by the JOLTS Jobs Openings and Wholesale Inventories. Finally, at 7.00 pm we have the FOMC Minutes from the last Meeting when the Fed Funds were cut by 0.25%.
December S&P 500
My S&P plan did not work well with the market trading the whole of my buy range for a 2925 average long position before stopping me out of this trade at 2909 and I am now flat. It is almost impossible to have any ‘’Stop’’ in the market given the ferocity of moves in both directions. After I was stopped the S&P made an initial low of 2895 before rallying to a rebound high above 2922 on the start of Fed Chair Powell’s speech before spending the last two hours trading sideways to lower. The S&P has strong support from 2870/2885 and I will be a buyer on any dip to this area with a 2859 stop. Building value below 2860 for three to four days is bearish, opening up a possible move lower to at least 2700. As we are so near short-term support I do not want to be short the S&P at this time.
The Euro just missed my 1.0940 buy level with a 1.0941 low print before rallying 30 points and I am still flat. Today I will lower my buy level slightly to 1.0885/1.0925 with a 1.0855 stop.
December Dollar Index
I am still flat the Dollar and I will now raise my sell level to 99.10/99.50 with a higher 99.85 stop.
My DAX plan worked well with the market trading the whole of my buy range for a 11950 average long position before rallying back above 12020. I used this move higher to cover this long position at my revised 11972 T/P level and I am still flat. Today my only interest in buying the DAX is on a further dip lower to 11800/11870 with a 11745 tight stop.
After the FTSE traded lower to my 7125 buy level I emailed my Platinum Members to exit any long position ahead of Powell’s speech at 7135 and I am still flat. The renewed weakness in Sterling is preventing the FTSE from falling further. The FTSE has support from 7010/7060 and I will be a buyer on any dip to this area with a 6965 stop.
Dow Rolling Contract
In contrast to the S&P above my Dow plan worked well with the market trading the whole of my buy range for a 26225 average long position before rallying back to my 26350 T/P level with a 26403 rebound high. Subsequently the Dow fell almost 250 points into the close and I am still flat. The Dow has strong support from 25875/26035 and I will be an aggressive buyer on any dip to this area with a 25750 wider stop. Given how close we are to short-term support I do not want to be short the market at this time. The 200 Day Moving Average comes in at 25900 while the McClellan Oscillator closed at -155 last night which is close to its -220/-280 oversold reading.
My NASDAQ plan also worked well as after I bought the market at 7663 we saw a nice rebound to my revised 7695 T/P level with a post Powell high of 7720. Subsequently the NASDAQ fell over 100 points into the close. The Fear & Greed Index closed at ‘’Fear’’ last night with a reading of 29. The NASDAQ has strong support from 7540/7590 and I will be a buyer in this area with a 7490 stop.
The Equity sell-off saw the Bund rally to my 174.60 sell level. This morning I emailed my Platinum Members to exit any short position at 174.45 and I am now flat. The Bund is struggling to follow the US Treasury Market higher which is no surprise given its yield of – 60 basis points. The Bund has strong resistance from 174.80/175.30 and I will be a seller in this area with a 175.65 stop.
Gold Rolling Contract
The Equity sell-ff led to a large rally in Gold which is trading $20 higher from where I posted yesterday morning at 1510. I am still flat and I will now raise my buy level to 1483/1493 with a 1475 stop.
Silver Rolling Contract
My latest 17.30 long Silver position worked well with the market rallying to my 17.58 T/P level with a 17.95 high print and I am still flat. Today I will again look to buy the market on any dip lower to 17.10/17.50 with a 16.70 stop. If I am taken long I will have a T/P level at 17.75.