S&P 500 (Mar 13) INTRADAY
Review We had a bearish strategy yesterday to reflect the technical and fundamental picture which suddenly turned heavily negative on Wednesday evening after the FOMC minutes were released. Our short entry level at 1506.50 was spot on with the high of the afternoon being one tick above here. From there the S&P trended lower for the majority of the US session and bottomed out 2 ticks above our second profit target at 1494.50.
Strategy We go into the final session of the week with the Italian election looming over the weekend with still a remarkable lack of clarity about the likely outcome. The very negative sentiment has been diminished somewhat this morning after some very strong German IFO data and then in the end a positive response to the repayment details of the ECB’s second LTRO where banks paid back €61.1bln which was less than half of what was expected. Eventually the market reaction to this news has been pricing in of more liquidity in the money markets and therefore lowering of short term rates which is being seen as a positive economically and hence S&P has just tested yesterday’s high. We believe that this is a pullback which gives the bears another opportunity to reload. We feel the sentiment will swing back to negative coming into the US session. We feel the Italian election risk, Sequestration risk and the EU commission again downgrading growth, employment and deficit forecasts this morning suggests that the German business sand economic confidence seen in the data this week may be short lived. We remain bearish with a short strategy.
Alternative Scenario Continued strength in European stocks as a result of the LTRO news may drag S&P up to test key resistance at 1511.
EUR/USD (Mar 13) INTRADAY
Review We were guilty of being too aggressive yesterday with a short strategy. We issues a short call at market on sending out the strategy at the 1.32 handle but fell victim of a climb to test our stop level at S1 which ended up providing the resistance that capped the high of the day. From there the market reversed back to test the earlier lows and in so doing hitting our first profit target. The pair closed down 0.87% adding to Wednesday’s big move lower and strongly confirming the bearish break below the long term uptrend line on Wednesday.
Strategy EURUSD is currently trading around the midpoint of the Nov - Feb rally. The technical picture remains highly bearish. The German IFO data this morning was very strong and provided some brief respite and drove a move higher to test yesterday afternoon’s high at 1.3233. However, news from the ECB that banks had paid back less than half of the second round of LTYRO loans compared to expectations lead to a sharp drop. €61.1bln was returned to the ECB and this result means there is more liquidity left in the system which has created downside pressure in short term rates. This in turn of course has a devaluation effect on the single currency. The pair had a strong test of yesterday’s low and since then has stabilised into a 20 pip range between 131.90 and 1.3170. There is no data this afternoon and so we anticipate that the February downtrend will continue due to Italian political risk ahead of this weekend’s election. We look for a short entry at the pivot.
Alternative Scenario More upside for European equities may drag the Euro higher in a correlation move.
US 10Y T-Note (Mar 13) INTRADAY
Review The session yesterday was largely impacted by the FOMC statement released Wednesday evening which showed that the Federal Reserve is more hawkish on the future of the QE3 program and whether or not continued aggressive bond buying is needed - especially highlighted by Fisher's comments. It is worth noting that he is already a known hawk, though is not a voting member. The strategy entry was obtained and the first target was hit around 3 hours after the release, partly helped by worse than expected US data.
Strategy This morning there has been a slight risk on sentiment in the markets as the German IFO Sentiment survey showed the highest reading since April 2012. At the same time the 2nd LTRO repayment was announced, and showed participants paid back less than half of the what was expected - which can be negative in the sense that banks do not have adequate balance sheets and either chooses or are forced to withhold financing for this reason. On the positive side, this is liquidity that remains in the market. The strategy today will assume a slight risk off sentiment and we are still long (neutral) on Treasuries, with an entry at the low of the day and first target conservatively located at the top of this mornings range.
Alternative Scenario The small trend since yesterday may continue, and if that is the case we would target S2.
Crude Oil (Apr 13) INTRADAY
Review We witnessed a nice sell off yesterday as the pricing in of lowered QE3 expectations spurred risk off sentiment including aggressive dollar strength. The double negative effect on commodities over the last two days has seen a massive $4.86 sell off since Wednesday afternoon when the sell off started. The strategy entry yesterday was not obtained due to the continued downside with lack of proper retracements - though our aggressive entry did manage to get us within 20 ticks of the market as the strategy was issued.
Strategy The DOE numbers yesterday showed, as the Amplify strategy suggested, a much larger build than expected by the market, so in theory this should have led to a continuation of the move downward. However, the components showed equally and bigger draw downs which neutralized the movement. This afternoon is very low on data, and drivers are likely to be headlines and comments surrounding the continuation of QE3 as well as the bank recapitalization in Europe - as illustrated by the relatively poor repayment of the LTRO this morning. The strategy goes with the trend and is neutral short from the pivot, with a 43 tick stop and a generous first target.
Alternative A reversal of yesterday's move can lead us to the low of Monday.