S&P 500 (Sept 12) INTRADAY
Review The mild drift lower in the S&P 500 that shaped yesterday’s European trade terminated at 1390.50, which was the level which provided support for this market on Tuesday morning. As we expected the index remained within the current week’s range in yesterday’s trade, albeit with the boundaries of yesterday’s intraday range tightening up in comparison to previous two days. Our yesterday’s strategy focused on establishing a long position at the low of the week’s range at 1387.50. Both of our yesterday’s targets at the pivot and the 1400.00 handle were attained with the slightly more bullish tone in the US session aiding with the upside momentum. Unfortunately, our yesterday’s neutral entry long was not reached.
Strategy The S&P 500 rallied from 1396.50 to test the high of the week at 1403.25 in the overnight session following the release of Chinese CPI, PPI, Retail Sales and Industrial Production data which on the whole was disappointing. The risk-on rally was as always fuelled on expectation of monetary policy easing from the PBOC. The overnight gains were pared reasonably quickly as the European session started off on the back foot for the equity space. For the session ahead we are looking forward to the release of Jobless Claims out of the US at 1:30PM BST. Initial Jobless Claims are expected to post a small gain (370k vs. prev. 365k) while Continuing Claims are expected to remain steady at 3,273k. For the session ahead we prefer to position ourselves with a neutral entry short at Tuesday’s high on the assumption that the weekly range should remain intact.
Alternative Scenario A much stronger than expected Jobless Claims data might prompt a break towards R2.
Review The EURUSD pair saw a significant dollar strength yesterday as funds flowed out of risky assets and into safe haven. The data calendar was light again yesterday, but a German Bund auction caught some attention adding a firm bid tone in response to a strong bid to cover ratio. However, it should not come as a surprise that the central European country is doing well. The strategy yesterday was spot on, and the entry level served as the high of the afternoon, before a sell off to the first target started, which capped the downside.
Strategy The currency pair has been over performing to the downside this morning, similar to yesterday. Greece unemployment numbers shows record unemployment for young citizens, and a total unemployment of 23.1%. The Spanish 10 year yields are currently working on its way back to the 7% level - in line with our expectations in previous reports, where we have raised our voice on how unimpressive it was to hear Draghi talk about further talks in the future. The time to act was yesterday. Of course the world does not go under and in the future it will recover on efforts made by the ECB - but sooner rather than later would have been nice Mr. Draghi. This afternoon US Unemployment Claims are expected at 371k. We are bullish on this number due to seasonal effects, but do not believe it will feed through to a risk on sentiment in the euro exactly because of this. The strategy for this afternoon is short, anticipating risk off and dollar strength, with an entry at the low of yesterday and a stop at the low of Monday.
Alternative Scenario Surprise developments in the Eurozone can lead to a move through the 1.24 handle.
US 10Y T-Note (Sept 12) INTRADAY
Review have to Unlike the bund auction where firm demand and low yields were seen the T-Note auction at 18:00 BST yesterday firmly disappointed and weight on Treasuries breaking our stop at 133.140 by 18:10. The auction was really the main focus for Treasuries on an otherwise quiet day as markets took a breather after four days of higher volatility in the aftermath of the ECB and NFP last week.
Strategy We expected markets to take a breather last night which was on the whole a correct assumption apart from T-Notes where the poor auction weighed on prices. So, the trend in Treasuries continues lower and the correlation between other assets remains skewed making short term direction decisions ever harder. As with other strategies we recommend in this type of market condition that traders look to keep their powder dry and profit targets tight. Our first target at 133.200 represents this should our cautious short at 133.250 be hit. On the data sheet the only real figure is initial Jobless claims at 13:30 BST on which we do not expect to see any major volatility.
Alternative Scenario Equities trade near their lows for the session at the time of writing and should the risk off sentiment continue then we would expect to pare some of the last few sessions losses breaking about 133.250.
Crude Oil (Sept 12) INTRADAY
Review Yesterday's market started off in a trend channel that eventually broke to the upside and posted the high of the day at R1. A sell-off followed, and the evening low was halted at the top of the trend line, which worked well as a classic entry long. News of note yesterday was the release of the DOE inventory numbers which showed a somewhat bigger draw down than expected, although due to the number was higher than the API released the evening before it did not create the bullish tone one would normally expect. The short strategy yesterday was filled and stopped due to the bullish tone that came in at NYMEX opening.
Strategy This morning the commodity have been ranging, although we have ob-served more volatility the last hour or so, and the sides of the range have expanded somewhat. The low of the day posts a nice trend line combining the lows of yesterday and the high of Monday. We do not expect this to still be in play at the close of business tonight. There have been some talk today of stimulus to the markets as China released weaker than expected data overnight. The markets more and more resembles a drug addict, which at the sign of getting a fix will get his or her act together for a very short time frame, before falling back in the same pattern. It seems unreal, but its the post meltdown world we live in. In the North Sea, Brent crude burst through the $110 mark for the first time since May due to a shortage of supply is due to summer maintenance of ageing Norwegian oil fields - and we might see the supply disruption feed through and put some upward pressure on the price of crude. This afternoon finally we have some data of note again that is relevant to all markets -US Unemployment claims. As stated above, bad data can feed through to the QE addicts and turn good, but only if it is bad enough. Today's strategy is long at the low of yesterday and a stop at the low of Monday.
Alternative There has been a shift in the sentiment which can lead to a sell off, targeting the $92 handle.