S&P 500 (Dec 12) INTRADAY
Review Yesterday’s S&P strategy worked very well yesterday as we were looking to play the range with a long entry at 1452.25. The index dipped to test this area following the disappointing Jobless Claims numbers but this negativity was eventually offset by the better than expected Philadelphia Fed headline which turned positive for the first time since April. However, initials reaction was choppy as the data was not all positive as the employment component hit the lowest level since September 2009. Eventually the S&P managed to gain traction and push higher and broke through the morning’s high to come within 5 ticks of our first profit target. The latter half of the session however was clouded by the bungled release of Google’s share price earnings results which were terrible. Google plummeted 10% and dragged the whole index off the highs and down though he lows.
Strategy Disappointment from the tech sector continued overnight as Microsoft became the fourth tech giant to release disappointing Q3 earnings. This tech sector underperformance is the only negative influence in what has otherwise been a very positive week. He US economic data has been very strong and we await Existing home sales news this afternoon. Peripheral bond yields have aggressively dropped following Moody’s announcement that they are not cutting Spain’s rating to junk. The EU summit has also seen decent but predicted progress made on the banking union. All in all we have a similar view as yesterday in that we expect a range bound market. The tech sector negativity is being counterbalanced by the positive factors mentioned above.
Alternative Scenario Bad US data will trigger some further downside and a break below S2 at 1441.
EUR/USD Spot INTRADAY
Review The currency pair was largely contained within a well defined range yesterday and it provided several nice trading opportunities for both bulls and bears. The data releases yesterday were for the most part better than expected, with the only exception being the US jobless claims that shocked the market at 388k. Comparing this to last week’s 4 year low of only 339k combined with a comment that basically stated the decent numbers lately was an error which weighed on the sentiment and this ultimately pushed us through to make new lows. The EURUSD entry was hit at 1515BST and the first target was obtained just about two hours later.
Strategy This morning the currency pair has been downward trending, but made an attempt to break the upside as the Prime minister of Spain Mariano Rajoy made comments on a press conference where he revealed to the public for what we believe is the first time - that Spain ‘will’ ask for a bailout if the yield becomes too high. At the moment the market is self regulating itself, with a sell off in yields every time they get close to the highs as the market is expecting a request from the Spanish Government. We question how long this can go on without the actual bailout going through. The data through out the week has been good and we expect that to continue with today's Existing Home Sales from the US. The EU has managed to come to a partial agreement on banking supervision which they expect to finalize the legal framework this year. Due to the recent data and the sell off's that we have seen, we believe the currency pair is oversold and are looking for a long entry at the bottom of the day, and will use the high of the day for the first target. Also because it is a weekend coming up today, speculations on a Spanish bailout is likely to reach the headlines and can feed through as a positive.
Alternative Scenario Increased yields in peripheral countries can lead to a sell off through the 1.30 handle.
US 10Y T-Note (Dec 12) INTRADAY
Review Another perfect strategy yesterday playing T-Notes to the short side with an aggressive entry at the Pivot level 132.095. At 14:30 BST Treasuries managed to reach this key resistance before moving back to the low of the range set for the day initially finding support at 132.000, the overnight low. Support was found here as surprise Google earning's which disappointed the market supported safe haven assets although later in the session T-Notes still manages to drift lower.
Strategy After the lack of activity on Tuesday and the move lower Wednesday we were fully confident on yesterday's sell off in T-Notes and are glad to have made the entry. Today however is less clear as after the Google report took the wind out of the market and more conflicting statements emerge out of Europe dampen the recent market euphoria we do not the trend lower continuing for today. However, at the same time we remain bearish Treasuries in the medium term and therefore today's long strategy will contain only a neutral weighting as we head into the weekend.
Alternative Scenario A break of yesterday's low at 131.290 may see the August low come into sight at 131.025.
Crude Oil (Dec 12) INTRADAY
Review Just as we sent out the strategy report yesterday we saw a surge to the downside of about $1.40 within two hours. The move was retraced again the following two hours after posting a doji on the 1 hour chart, signalling reversal in the price movement. Due to the recent positive economic data any downside movement for crude has tended to be short lived which has lead to the market just oscillating around $92.50 for the last two weeks.
Strategy The commodity has seen some upward pressure early afternoon due to a three day closure of an oil pipeline from Canada to the United States, which is creating supply worries in the Gulf of Mexico region. It is the biggest pipeline in Canada and has capacity to transport one third of all of the country's production. The shut down is due to a small anomaly on the pipe according to the company that manages the pipes. Further upward pressure is on the table as we have an everlasting instability in the middle east, with Iran increasing its uranium enrichment program. We believe this can ultimately become a trigger for an Israeli lead attack - though nothing is imminent. The Existing Home sales today should provide a good opportunity to go long, should it not have encountered the same distortion as the jobless numbers as we posted great numbers last month. The strategy entry is long today at the pivot level.
Alternative A big miss on the Existing Home Sales data release combined with negative macro developments can lead to a sell off through the low from yesterday.
