S&P 500 (Mar 13) INTRADAY
Review All three days this week our neutral long strategy has worked well as global equities continue their slow, low volume grind higher. Yesterday our long entry at 1514.50 was tested just after the European close and perfectly halted the slide. However, the rebound was exceptionally slow and it took the S&P two hours to drift up to test our first target which was a very modest five points higher. Our first target at 1519 capped the upside before a choppy closing period that resulted in a perfect doji on the daily chart.
Strategy The last four session have seen the S&P add just a few ticks to the five year high each day. However, this morning’s activity has surely resulted in this pattern now being broken. There has been a large risk off move focused around the Eurozone markets as German, French and the Eurozone as a whole all posted worse than expected Q4 GDP numbers. For Germany it is the first contraction in nearly three years and for the EZ it was the fourth quarterly contraction in a row and the largest at –0.9% . Equities and the Euro have been hammered with Bunds making decent gains as perhaps a long overdue pullback takes place. This is certainly bad news and enough for us to flip to a short strategy fopr this afternoon. However, this is ‘old news’ as the data is measuring out put going as far back as October and the more lead indicators like Manufacturing data has shown recent improvement. So this is not necessarily the beginning of a large pullback in risk in the coming weeks but enough to instigate profit taking that should keep risk assets under pressure into the end of the week.
Alternative Scenario Positive Jobless Claims data may allow some relief and a push back above the pivot level.
EUR/USD (Mar 13) INTRADAY
Review The downward trend channel that has been in play since the first of February was broken to the upside yesterday as positive comments from central banks and the G-7 the day before set the morning mood for the market to rocket higher. Once the line was breached it spiked about 30 pips the first hour and about 80 within the next few in total. Of course this could not last, and as more comments hit the market we subsequently sold off through the entry and had a heavy test of the stop line, which illustrates the importance of having your stop order on the other side of it. The currency pair rebounded and we booked a small 7 tick loss at 1800GMT.
Strategy As expected this morning all eyes were on the preliminary Q4 GDP numbers from central European nations, which were all posted worse than expected. This has led to a decent sell off across assets, especially in the EURUSD and the Dax. This afternoon the Initial Jobless Claims are extremely interesting due to the state of the US economy relative to the European, as well as the previous decent numbers we have seen. Should this be good we may see dollar strength (though we doubt it will spur risk on), and if it is bad there may be some flight to quality. Similar with the euro area we may see some comments from Draghi's club on what measures they may or may not take, or hints of them, which is euro negative. For this reason we are short in today's session.
Alternative Scenario Should comments spur risk on sentiment we may expect a climb back above the 1.34 handle.
US 10Y T-Note (Mar 13) INTRADAY
Review The trend line lower share yesterday remains in place as shown below. As long as we stay below here then the trend in T-Notes should remain bearish. However, we have had a sharp pull lower in risk this morning as poor European GDP data weighed on appetite after weeks of successive gains as traders and investors book profits on some longer term bullish trend.
Strategy Technically the focus remains on the trend line shown below and we look for a test of the pivot first before booking profit on that long on the test of this trend line. We expect sentient to remain negative in the near term and safe haven assets to be supported. On a break of the trend resistance we expect 131.240 to be reached in quick succession reversing the trend lower seen through most of the month so far. On the data sheet we have initial jobless claims which if positive we expect to have only a limited effect on a market driven by sentiment today.
Alternative Scenario A reversal in the sentiment we have seen this morning will see T-Notes continue the trend lower and below this morning's low we may see S1 at 130.300.
Crude Oil (Mar 13) INTRADAY
Review The commodity was in a bid tone yesterday morning as the talks of currency wars continued, and as we were heading in to the afternoon these were positive. As always with the European economy though it can all turn on a penny and the market went downhill from 1400GMT. DoE numbers were very bullish as expected, but the weight of the risk off move was too grand with the fact that US crude production hit another 20 year high helping the downside. The strategy entry was obtained, and we went down to test the stop line - which held - and the position was closed at 1800GMT with a 10 tick profit.
Strategy This morning has been action packed with Eurozone GDP numbers of no surprise being the main headline. A miss on all headlines has left risk assets in a free fall this morning, with crude oil lagging somewhat behind in correlation - which is the cause of the move down being mostly due to euro weakness and not dollar strength. At the same time this is negative due to the miss on all headlines, which ultimately will drag us lower. The main news this afternoon is Initial Jobless Claims, and in 2013 this has been a particular number of interest due to the position of the US economy at this point in time, as well as the good numbers that we saw on the earliest postings. The strategy entry today will be short at the overnight high - and a stop that gives us enough room at the high of Tuesday. Alternative stop for the risk averse can be put at yesterday mornings support.
Alternative Sudden risk on spurred by ECB or EU comments may lead us towards the high of yesterday.