S&P 500 (Dec 12) INTRADAY
Review It was a fairly uneventful session yesterday with the range being contained within Monday’s range. Speculation surrounding the timing of a Spanish bailout request shaped the day with rumours suggesting it may come as early as this weekend gave stocks a mild lift after the European open. We had a neutral strategy overall with a long entry at 1438.75 and this level provided strong support on first test at 15.00BST. The market bounced sharply from here up to our first profit target for a nice short trade. From there the S&P dropped back to our entry level where support was found until after the European cash close we broke lower. Rajoy himself helped the downside as he countered earlier rumours by saying a bailout request is not imminent.
Strategy This afternoon’s price action will be controlled by the US economic data. So far the S&P seems to be caught in an ever diminishing range this week with todays action being within yesterday’s range. We have seen some dire Services PMIs this morning with Spain winning the booby prize after releasing a number 40.2. Also, Germany’s PMI slipped below 50 for the first time since March 2009. However, risk assets have been resilient to this with another positive European open being added to by better than expected Eurozone retail sales. The range for the last few hours has been pivot to 1442 which was last night’s resistance. The ADP Employment data and the US ISM Non-Manufacturing numbers will now determine whether the4 S&P pushed to tyest yesterday’s high or drops to test yesterday’s low. For now we will assign a neutral short strategy with positive ADP data taking us to test yesterday’s high but bad ISM leading to a retracement.
Alternative Scenario Bullish data across the board may allow a break of yesterday’s high and a test of 1451.50.
EUR/USD Spot INTRADAY
Review The EURUSD yesterday was uncoupled from its normal correlations as it was steadily trending higher in an extremely well defined channel during yesterday's session. As other currency pairs broke their trends, such as the Aussie, the EURUSD continued and it was a difficult and frustrating day for breakout traders, although if you followed your friend the trend you would have had a great amount of opportunities on a day without any massive data releases. The strategy entry yesterday assumed a half decent pull back, but as this never came the entry was never obtained. The first and second target both acted as decent resistance levels, and the latter helped capping the top of the day.
Strategy Initially overnight the trend has been lower as we were reversing from yesterday. We have however bounced as EURUSD hit the low from Yesterday and Monday’s support, so the medium term picture remains range bound. The data to look out for today is ISM Non-Manufacturing and ADP Employment figures. As the latter is a warm up for Friday's NFP. Two months ago they posted the same number but last month they diverged. We are slightly bullish and believe that as long as the number is at least in line there will be a mild risk on tone in the market. Further to this - if the ISM shows the same posting we believe the 1.30 handle has the potential to be breached, although the resistance at this level is immense, with 50% Fib levels on various ranges coinciding in this area, as well as the psychological importance. Seeing as we have not sold off since last we traded in the area, we are convinced that a new test will lead to a breach and a boosted pop will occur as we go through. We are therefore long at the bottom of the daily range, although due to the distance to the 1.30 handle we are not willing to commit it to a target on the strategy but want traders to be aware of its significance.
Alternative Scenario Should the data be much worse than expected we might see a risk off move through 1.28.
US 10Y T-Note (Dec 12) INTRADAY
Review Yesterday we identified the level 133.215 as our entry short as this level capped the upside of Monday's range. We did not expect any significant action in the Treasury market and therefore expected this range to hold with a bias on the downside due to the rally in risk for the morning session. It took until 16:30 BST to reach this level which dutifully held although there was little scope for profit on the trade as the market only reached a low of 133.175 after hitting this point. Overnight we have managed to squeeze through 133.215 and now use this level as a platform on which to find support.
Strategy Making a call on market direction today is unclear as it stands as we wait for the ADP data to be released at 13:15 and the ISM Manufacturing data at 15:00. We are expecting the data out of the US to show a bias to the upside and therefore we will look for an entry short at 133.270, the high set last Friday. Of course this entry is data dependent and therefore the neutral weighting reflects our caution on pre-empting the data release. Similarly are targets are prudent with 133.215 as target one and the Pivot Level 133.185 as target two. Should we see much better than expected data we are likely to test again the low of the range set on Monday at 133.115.
Alternative Scenario Disappointing data will move T-Notes above 133.270 and into territory not yet seen in the December contract. The next level above here would be 134.000.
Crude Oil (Nov 12) INTRADAY
Review Yesterday was an interesting day for the commodity as for a lot of the session the market was in a $1 range with the top side being just below the $93 handle. The strategy yesterday was aiming at playing this range as there were no real data of note to drive a bigger move. Therefore, both a long and a short could have been in place, but we slightly favoured the upside due to the tensions in the middle east and the QE3 developments that are continuously feeding in to the markets. At the first test we did not quite hit the entry and fell short about 6 ticks, but went bid and came within 21 ticks of the first target. At the second test the market went through entry but did not quite hit the stop.
Strategy Last night the API numbers were released and showed a build of 462k versus the previous 335k, with no massive deviations on the sub categories. Today's DOE Inventories number is expected at 1.5M, a large build, and a difference of about 4M from last week’s massive draw down. We see this as a somewhat bearish set up, and as we believe that the US and SA is still working on getting the crude price down as an on-going effort, today will be bearish on crude assuming no massive surprise draw downs in the inventories - in which case all bets are off and we are more than likely to see a new high of the day depending on where we are trading. Last weeks number though saw a limited upside on the draw down, which helps us believe that whatever the number may be, we may see downside in the end. The ADP Employment number is also out today, and we are of the belief that as long as the number is in-line or better than expected, there will be a lift in risk assets. This is the only massive concern on our behalf as far as the strategy entry short goes, in addition to the ME troubles, but they seem more static for now.
Alternative A risk on scenario on the back of decent data can lead us up to above the $92 handle.