S&P 500 (Dec 12) INTRADAY
Review The S&P strategy again worked well yesterday as we had a short entry at 1454.50. At 13.45BST the S&P pushed higher due to a technical spike in the Dax more than anything more fundamental in a move that topped out 1 tick above our short entry level. The S&P then sold off into the US cash open and bottomed out 2 ticks above our first profit target which was close enough for us to book profits. The range was then set as the market returned to our short entry level and then reversed back towards the lows before then bouncing and closing back on the entry. Overall, there was very little key fundamental developments to drive major movement.
Strategy The market was boosted overnight due to the fact the BoJ announced a larger than expected extension to their QE programme and have announced a further 10 trillion Yen. The drift higher topped out at resistance from Monday’s high at 1459. 1450 seems to be a key pivotal price this week, it operated perfectly as our short entry level yesterday and this morning has been stubborn support. The market is generally drifting sideways in consolidation of recent gains as we await further major macro developments. This afternoon the focus will be on the housing market with Housing Starts, Building permits and Existing home sales all being announced. This is likely to be positive news as the housing market continues its tentative recovery and even if it is bad news the markets are likely to ignore it due to the fact that the Fed are buying at least $40bln of MBS per month. So, after a couple of session where we have been operating with a short entry, today we have a Neutral Long strategy.
Alternative Scenario Very bad data may push S&P down through yesterday’s low and test S2.
EUR/USD Spot INTRADAY
Review The currency pair was in a nicely defined downward range yesterday as the QE3 and Draghi bazooka rally from last week continued to consolidate with a small pull back. The leg lower yesterday was profit taking, and we targeted at maximum a retracement to the 1.30 handle, which is psychologically important and targeted by a lot of traders, both for the above mentioned reason as well as new positioning. The strategy entry was not filled yesterday due to the lack of retracements in the price movement.
Strategy Overnight the currency pair initially bounced but met resistance at the previous key support area from Monday, and since we have been selling off rather sharply, and we are currently through the Pivot and S1 level. Today's session we predict will mark an end to the profit taking that has been the theme for the week so far, and appropriately so we are expecting it to bottom out at the 1.30 handle where several traders are expected to take on new longs to target the highs. After all, we are in a much better position at this point than what we have been since Greece announced its huge debt pile back in 2010, and should they now default on their debt the firewall is unlimited, which is just enough to avoid contagion. A German Schatz auction this morning witnessed the first one without zero or negative yield in some time, indicating that risk is still on the table for investors, and a further hint to traders that two day sell off is just temporary. This afternoon there is a lot of housing data coming out of the US, and we remain that bad data is just temporarily bad due to quantitative easing, and good data is good data. For this reason we should not panic if the data is bad, and there will not be a subsequent sell off , merely a small correction. Today's strategy is long at the 1.30 handle.
Alternative Scenario A move through the 1.30 handle can lead to a bounce lower. Although we do not believe it will continue, it will be a technical break which can stop the strategy.
US 10Y T-Note (Dec 12) INTRADAY
Review Again yesterday we were guilty of being too conservative with our long entry level although our level defined as our first profit target at 132.065 operated as very good aggressive entry long as this price provided support throughout the session. It was another relatively uneventful session with T-Notes still chopping around in the FOMC spike range between 132.310 and 131.270.
Strategy The current price is about in the middle of the FOMC range. There are two offsetting forces at work with the Fed’s latest QE programme being positive for T-Notes as demand increases as the Fed will start purchasing these securities but there is also a negative force in the fact that T-Notes are a safe haven and QE3 has triggered a risk-on move that should lead to funds being withdrawn from safe areas. For now these forces are balanced and we await further macro developments before we determine which force will become dominant. IN the meantime we expect range bound conditions. Today’s focus will be largely on the US housing situation with a raft of data on the sector. We feel there is a reasonable chance this will indicate positive news and so we have a neutral short strategy as we expect the market to push back lower after testing yesterday’s high as resistance.
Alternative Scenario Bad data may indicate that the Fed’s open ended QE3 programme will have to be larger and last longer to achieve its objectives and so this may lead to T-Notes strength and a break above yesterday’s high and a test of R2 at 132.255.
Crude Oil (Nov 12) INTRADAY
Review Crude was downward trending yesterday as algorithms somewhat falsely started selling on the back of potential release of oil reserves in the US. On Monday night this led to a $4 sell off, and this was just continued on Tuesday, although in a more orderly fashion. The commodity finished the day by finding resistance in the area which worked as support in the afternoon. The short strategy entry worked well, and was not tested more than a few minutes before we sold off and hit the first target, before again going bid to the entry point and this time just ending up mid way between first and second target.
Strategy The API numbers overnight showed a build of 2.4M against previous small build of 0.22M. If this proves to be correct for the Department of Energy numbers as well it will create even further downside in today's session as the expected number is a draw down of 0.2M. The signals from Saudi Arabia that they are in the process of implementing new efforts to take down the crude price from the high levels we are now trading at is psychologically significant in itself, and combined with the insecurity with the potential release of strategic oil reserves in the US there are not many traders that are willing to commit to long term bullish positions in this market as they do not see much upside, despite the recent positive economic developments that have been made. The last two sessions we have been more bearish risk assets based on a profit taking argument, although today we will be more bullish, and doing a contrary short on crude oil. The entry will be at the low from yesterday and a stop at the pivot. We have now rolled to trade Nov12.
Alternative More attention to the developments between Israel and Iran can lead to a spike in the price up to the high of the day.