S&P 500 (Mar 13) INTRADAY
Review We had a high risk long strategy yesterday as we felt the index would consolidate Monday’s heavy downside and not yet extend those losses. We had a tight stop given the high risk nature of the trade. Overall, the strategy worked well as the S&P bottomed out five ticks below our long entry level which was 4 ticks away from our tight stop. This low occurred around the European cash close as it was still uncertain at that point whether there was any chance of the Italian politicians forming a coalition Government. Also, initially Bernanke was perhaps not has dovish as some investors were hoping. But, as Bernanke's Q&A went on he became more dovish, strongly defending the Fed’s aggressive easing policy and this helped reverse the sentiment and with traders growing more confident of a positive Italian outcome the index climbed to make news highs for the day and in so doing reached our first profit target.
Strategy This morning has been stable. The S&P is currently ranging within the upper half of yesterday’s range. The Eurozone posted some improved confidence numbers for once and the Italians got their bond auction away albeit with the considerable help of their own banks. We are going to have to get used to Italian political uncertainty as if they are to form a temporary Grand Coalition then it will take days if not weeks. In the meantime we have Durable Goods data from the US at 13.30 and more housing data at 15.00GMT. We feel that the most probable direction from here is to the downside. The index took a breather yesterday and we expect weakness today as the Italian risk lingers. We have a short strategy.
Alternative Scenario Positive headline risk from Italy may drive a larger rebound from Monday’s losses and a move to test resistance at 1506.00 which is R2.
EUR/USD (Mar 13) INTRADAY
Review We were looking to play the consolidation range yesterday after Monday’s big sell off. We had a high risk long strategy as we expected the currency pair to find support around 1.3050 and this was indeed the case. 1.3050 was solid support throughout the US session and the initial spike higher off Bernanke triggered our first profit target. From there though the dollar did not extend its weakness as Bernanke was ambiguous at best and perhaps did not live up to his dovish billing. Also, the news from Italy was mixed but perhaps overall we have seen the chances of some sort of grand coalition increasing which also prevent the Euro from adding to Monday’s losses. In the end we had a near doji on the daily chart.
Strategy Yesterday’s doji was fairly predictable as markets often spend a day consolidating after a large move. There has been some decent strength at times for the Euro this morning and the pair has been testing yesterday’s high without a breach. We feel that the Euro may have another weak session as the uncertainty over the Italian political situation remains and Bernanke completes the second half of this semi-annual testimony in the House today and this may emphasise the fact that he was less dovish than many had hoped. So we are looking for a short strategy this afternoon using yesterday’s high as an entry. However, we stay very vigilant towards Italian political headline risk with any positive coalition comments likely to drive some Euro strength.
Alternative Scenario Positive headlines from Italy or hawkish comments from Bernanke will lead to a move up towards the 1.32 handle.
US 10Y T-Note (Mar 13) INTRADAY
Review The Eurozone circus has come back to entertain us and as traders have discovered over the last five years uncertainty is a major weight on risk assets and the Italian political situation is nothing if not uncertain. However, the majority of the action in safe haven assets was seen on Monday evening and so for yesterday T-Notes traded in a very tight range between 132.155 and 132.305. Yesterday we looked for an entry long at 131.170 which was the overnight low. This was filled at 14:00 and 15:00 GMT giving traders more than enough chance to join our strategy. Our entry provided the perfect support as the at 16:00 we moved towards our first target at 132.305. However as the market came just short of this target despite the opportunity to book the trade will be recorded at being closed for only a slight gain at 18:00.
Strategy As the range was so tight yesterday we are able to use the same levels for today's strategy and will look to enter long at the same level 132.170 with a tight stop at S1, 132.145. To avoid the situation yesterday where a profitable trade may not have been booked at an appropriate level our first target is slightly closer today at 132.280. On the figure sheet the data remains relatively light but we do believe the main market action will be delivered through political developments in the Eurozone. On that point is should be noted that the Italian 10yr auction went this morning without a hitch although we believe that would only temporarily halt the pull back in sentiment.
Alternative Scenario A break below 132.170 and subsequently 132.145 could lead to a test S2 at 132.075.
Crude Oil (Apr 13) INTRADAY
Review Crude was initially in a very nice range yesterday as the market was awaiting Ben Bernanke testifying in front of Senate. Expectations were for a much more dovish stance from the Chairman than what we saw last week with the Feds minutes. Initial reaction to his speech was good as one of the phrases used was "the benefits of easing outweigh the costs and risks" - leading crude up to new highs. However, he followed this by say ‘More QE may erode confidence in Fed’s exit strategy’ and so the market reversed the gains. We were 10 ticks away from a strategy fill which would have taken us up to both the first and the second targets.
Strategy Though we are overall negative on the markets in the short term, the strategy yesterday was long due to Bernanke taking stance and testifying at the Senate - which we hoped would bring a bid tone in the markets. Broadly speaking, we were correct, and the strategies collected 106 ticks overall yesterday. Today there are no Fed announcement that can alter the market via QE, and there are no other expected data that can make the market go bid. Of note - an Italian coalition would be the most positive that could happen, though as this did not happen yesterday we are holding our horses for the immediate future. The API numbers overnight were somewhat in-line, with a slight lean to the bull side. Unless a huge deviation to the downside on this number, we believe the bears have enough ammunition to take us lower, and at best take us down to test $91 - though this is outside the range of our official targets - first being double bottom yesterday and second being the low of 4th January.
Alternative Much bigger draw down than expected can lead to a bid tone and take us up though to R2.