S&P 500 (Mar 13) INTRADAY
Review On Friday we implemented a short strategy using R1 and the 14th Feb low as our entry level at 1509.75. This was an aggressive call as the index was trading on this level as we sent out the strategy but it was the correct call. Having spent an hour and a half on the level the S&P dipped prior to the cash open. There was a brief blip back to the entry on the cash open but this was temporary as the index then sold off to break below the European morning lows. Our first profit target was defined at 1502 and unfortunately the index came within 5 ticks of this before reversing back higher. Following the European close the S&P bounced 10 points to remarkably make new highs for the day.
Strategy There is no scheduled news flow in terms of economic data today. All eyes are on Italy’s election although polls have not yet closed and we do not expect and concrete results until later tonight. However, the turn out rate has been lower than expected particularly in northern Italy leading analyst to make the assumption that Berlusconi has not won as much support as was expected. This would be a positive from an economic perspective and the FTSE MIB is up 2.4% with Italian yields lower in response. So there is mild risk on across assets despite the outcome of the election being still in doubt. Also, Friday’s 1st March Sequestration deadline looms and Washington seems to be actually getting further away from a deal. Thankfully Bernanke has his semiannual testimony on Tuesday and so will look to cushion and Washington induced sequestration blow with the promise of continued easing. We feel the S&P has risen unjustifiably high this morning and have a short entry at R2 1523.50.
Alternative Scenario Continued positive reaction to Italian election expectations may see the S&P test last week’s high.
EUR/USD (Mar 13) INTRADAY
Review Looking back, last week was one big down day with dollar strength on the back of the Federal Reserve indicating it may not continue easing at current rates in to the foreseeable future, but start going back on some of its measures due to the high risk of pumping $85 billion in to the economy every month - over a trillion every year. The market on Friday calmed down as we had great data out of Germany and looking back there was a range from Thursday evening to late Friday evening. The entry point short on the strategy was not filled, though the first target worked well as support area for the session.
Strategy As the 1st of March deadline is closing in, we are awaiting the decisions from the US politicians - if there is political will to get the budget through or whether massive spending cuts will be imposed on the economy. For this very reason, the Federal Reserve now has extra pressure on them to continue their stimulus program, as government money will leave the economy and leave a hole that needs to be filled. It is unlikely that the QE package will be expanded, but it increases the chances of QE continuing unchecked. For this reason, markets are now pricing in continued stimulus, and this has led to a great bid in the EURUSD this morning. The Italian election is upon us, and we are bracing ourselves for the comeback master Berlusconi to return to power - and praying for Bersani to continue Mario Monti’s economic reforms for another term. Needless to say, the Pope could have timed his resignation better. The strategy entry is long with a decent room down to the stop at Friday's high, considering some volatility at these levels.
Alternative Scenario Rumours of a good election for Berlusconi can adversely affect the markets and lead to euro weakness. we would target the low of Friday.
US 10Y T-Note (Mar 13) INTRADAY
Review On Friday our strategy was to enter long at 131.200, the low for the morning session as we believed a risk off sentiment would support Treasuries after a busy week of volatility. Unfortunately although a good strategy, our entry was too prudent and we did not get filled for a long entry. T-Notes did push higher and found resistance just below our second target, 131.315, which was the high set on Thursday.
Strategy Through the month of February T-Notes have not really found any clear direction as they have moved in a choppy an indeterminable manner gradually edging higher to trade now close to the highest levels of the month. It is not clear on direction from here but all eyes will of course be on the US on Friday as they announce how the sequestration of $1.2 Trillion will take place. Many traders believe that in response to the punitive fiscal measures self inflicted on the US economy the Fed will increase again monetary support which could see further Treasury note buying. We look to go long on at 131.235, the high set on February 15th with a stop placed at 131.200, Friday's Low.
Alternative Scenario A breach of 131.235, today's stop, may see a quick test of 131.200, the low set on Friday.
Crude Oil (Apr 13) INTRADAY
Review Crude was in a decent down trend for the most part of last week, though it flattened out on Friday and we hardly saw any action at all. The day itself was dominated by the surprise of much better than expected German data, that gave a positive spin to the whole of the session, which otherwise would have been bearish. The risks of the Italian election results put a damper on the activity. The strategy entry short from the previous high was only hit after the cut off time at 1800GMT - which capped the upside but in the end did not trigger any pullback.
Strategy The worries over the continued duration over the US stimulus package was putting pressure on the commodity all of last week, but as the pressure on the US Government is increasing and sequestration may become a part of reality on the 1st of March when the self imposed delayed deadline of a deal should be made. This again is putting pressure on the Federal Reserve - which is facing a former ally in the battle of in getting the economy back up on its feet - the government. If a deal is not being done, the Fed may be forced to continue their stimulus program and the negative effect this would otherwise have with increased inflation disappears, at least in the short term. This in turn will weaken the dollar and create a risk on sentiment when released. This is likely to be a dominant factor of the session, combined with the Italian election uncertainty - and we are praying for Bersani to continue Mario Monti’s efforts for the next term. The strategy is long on today's session with an entry at the double top from Friday - which is conservatively 60 ticks below where we are currently trading.
Alternative Comments on Berlusconi returning to power may get the commodity down to the low of Friday.