The Dow made a 17 month high today, maintinaing its positive dynamic following Tuesdays FOMC statement of rates remaining low for an "extended period". Having broken past the key resistance level of 10700, this now looks to become key support, and now looks like an opportune moment to go long.
Obviously there are still potential volatile events relating to P.I.G.S and a possible downgrade of the US or the UK, however market consensus right now seems to be that its all fine, Greece and anyone else who needs to will be bailed out, and the market will work itself out in the event of a downgrade, and borowing costs for the US should not rise too much. I dont know about that, but I know that one must not fight the tape. And while fundamentals in my opinion, are still weak, a liquidity driven market where excess money is being printed is very likely to drive the price of assets higher, and also lead to inflation. Given the nature of markets, and that when everyone is bullish, (as everyone, really seems to be, in the media anyway) I would advise a tight stop, an inital stop at 10700, and a second stop at 10650 (for longs placed in the 10670/10680 region).
With CPI due for release tomorrow however, my view is that over the coming weeks it is more likely to beat expectations, and with forecast currently at 0.1% I think it is likely to be beat or matched. Given however that the markets are currently fearful of inflation, any major overshoot on this result could provide a 30-50pt sell off, and this would be looked at as a buying opportunity tomorrow in my opinion given the current market dynamic, and in the absence of any unexpected debt related news.
GBP/USD has been driven up by a short squeeze as perception of fundamentals improves with better than expected unemployment report, and also a general easing of fears relating to government debt (despite Mondays news relating to potential cuts for the UK and US ratings). Although there is continuing unexpected news possibilities, with random poles on the election, and the "hung parliament" scenario coming back in to cause weakness in the pound. Fundamentally given this, and deficit, and the lack of improvement in the economy, I feel the pound is currently still susceptible to a sell off. However you cant fight the tape, and with a tight stop at 15285 I am looking to go long.
Quotes:
DOW 10739
FTSE 5645
GBP/USD 15324
EUR/USD 13737
Gold 1123
Crude 8306
Goldmans 176.68
RBS 43.55
USD Index 79.74
Trading strategies for Thursday 18th:
1)Buy GBP/USD 15324, Stop 15285 Target15380, however medium term target to 1.56-1.57, and potentially beyond.
2)Buy Dow current 10739, Stop 10700. Target 10790
Buy Dow at 10680, stop 10650, target 10730.
A longer term trade would be placement of a stop in the 10400 region, as there is also support there, however this is likely to be reached only if there is sudden unexpected news, hence it would be good to combine this with puts, or buying the VIX.
In order to hedge beta, or correlation risk, I would be looking to short crude, as it is close to upside resistance, at 8350
3)Short Crude 8309, target 8250 (however short to be held as long as above longs are held). (crude postion to be approx 30% of the portfolio)
4)long ftse, at 5645, stop at 5600, target 5700.
short term (next day)
Alternatively shorting the FTSE in proportion to the Dow would enable a beta hedge, as the Dow currently looks technically stronger than the FTSE in my opinion.
Medium Term (1/2 weeks):
Long FTSE
Long Dow
Wednesday, 17 March 2010
Tuesday, 16 March 2010
Dow not moving just grooving-Wait and See
Quotes:
FTSE 5625
Dow 10657
USD 80.16
Crude 80.04
Gold 1113
GBP/USD 15100
EUR/USD 13690
Xstrata 1168
The Dow has continued to ebb higher with the generally positive market dynamic, as the Euro plans to put in measures to bail out Greece if required, and fears of contagion relating to sovereign debt calm. EUR/USD having rallied of 13500 has the potential to make it back to the 14000 provided the FED maintains its stance tomorrow of keeping rates low for an “extended period”. Given the potential problems in the market, and ongoing problem with the weakness of the Yuan, I think it is likely that they will maintain the same outlook.
Announcements by credit rating agencies that the UK and US were close to having their ratings cut did not trigger any significant sell off (bull market dynamic), with the market rallying into the close as Dodd’s financial regulation plans come in weaker than expected.
Miners have seen 3-4% correction as China continues to take a tough stance on preventing overheating and hyperinflation, suggesting further tightening. Oil rallied from 7930 today back into the $80 region as the market maintains its positive dynamic.
At the moment the miners seem to be hitting key resistance, a point to note would be that despite China’s efforts to slow down its economy, and prevent runaway inflation, it doesn’t necessarily mean it will be able to do so. Hence the demand for miners is likely to remain high, and so earnings are likely to be a key catalyst to maintain their rally.
Financials continue to rally with easing of Government debt fears, and tightening of sovereign spreads. Goldman Sachs having approached key resistance at $175,a break above this would suggest a high probability rally to the $190 region, pending the completed release of Dodd’s financial regulation reform. I also continue to be long RBS, with a tight stop. Longer term investors may consider a stop at 40p (in case of any unexpected news relating to downgrades of the UK government, or UK fiscal situation).
However we have reached significant resistance on the Dow, with the market unable to hold on to the 10700 region. Most likely the catalyst for a move beyond this would be Q1 earnings season, however any significant improvement in non farm pay rolls may provide the push through, turning 10700 into a key support level.
Right now the risk/reward ratio isn’t really there to go long, so the key is to wait, for a break to the upside past 10700, or another corrective phase.
Possible ratings cuts, and further pre election surveys pose further downside risk to GBP/USD making it difficult to forecast, however, from a purely technical perspective any large daily move up to 15200/15300 would be seen as potential for a rally back to 16000.
Oil having met key resistance once again in the $82 region, crude looks set to continue to range, between 78-82 (in absence of any bearish news that could trigger a further correction to the lower 70’s region).
In my opinion the underlying conditions of the economy, in relation to consumer spending, availability of consumer credit, unemployment, and the American housing market, continue to remain weak. However with quantitative easing set to continue opaquely via Fannie Mae and Freddie Mac, there is a good chance of an ongoing liquidity driven rally (once the Dow is able to break above 10700).
FTSE 5625
Dow 10657
USD 80.16
Crude 80.04
Gold 1113
GBP/USD 15100
EUR/USD 13690
Xstrata 1168
The Dow has continued to ebb higher with the generally positive market dynamic, as the Euro plans to put in measures to bail out Greece if required, and fears of contagion relating to sovereign debt calm. EUR/USD having rallied of 13500 has the potential to make it back to the 14000 provided the FED maintains its stance tomorrow of keeping rates low for an “extended period”. Given the potential problems in the market, and ongoing problem with the weakness of the Yuan, I think it is likely that they will maintain the same outlook.
Announcements by credit rating agencies that the UK and US were close to having their ratings cut did not trigger any significant sell off (bull market dynamic), with the market rallying into the close as Dodd’s financial regulation plans come in weaker than expected.
Miners have seen 3-4% correction as China continues to take a tough stance on preventing overheating and hyperinflation, suggesting further tightening. Oil rallied from 7930 today back into the $80 region as the market maintains its positive dynamic.
At the moment the miners seem to be hitting key resistance, a point to note would be that despite China’s efforts to slow down its economy, and prevent runaway inflation, it doesn’t necessarily mean it will be able to do so. Hence the demand for miners is likely to remain high, and so earnings are likely to be a key catalyst to maintain their rally.
Financials continue to rally with easing of Government debt fears, and tightening of sovereign spreads. Goldman Sachs having approached key resistance at $175,a break above this would suggest a high probability rally to the $190 region, pending the completed release of Dodd’s financial regulation reform. I also continue to be long RBS, with a tight stop. Longer term investors may consider a stop at 40p (in case of any unexpected news relating to downgrades of the UK government, or UK fiscal situation).
However we have reached significant resistance on the Dow, with the market unable to hold on to the 10700 region. Most likely the catalyst for a move beyond this would be Q1 earnings season, however any significant improvement in non farm pay rolls may provide the push through, turning 10700 into a key support level.
Right now the risk/reward ratio isn’t really there to go long, so the key is to wait, for a break to the upside past 10700, or another corrective phase.
Possible ratings cuts, and further pre election surveys pose further downside risk to GBP/USD making it difficult to forecast, however, from a purely technical perspective any large daily move up to 15200/15300 would be seen as potential for a rally back to 16000.
Oil having met key resistance once again in the $82 region, crude looks set to continue to range, between 78-82 (in absence of any bearish news that could trigger a further correction to the lower 70’s region).
In my opinion the underlying conditions of the economy, in relation to consumer spending, availability of consumer credit, unemployment, and the American housing market, continue to remain weak. However with quantitative easing set to continue opaquely via Fannie Mae and Freddie Mac, there is a good chance of an ongoing liquidity driven rally (once the Dow is able to break above 10700).
Thursday, 4 March 2010
Non Farm Payrolls
With better than expected Initial Jobless claims today, at 469K compared to 475K, the market has remained buoyant, and maintained its positive dynamic,with the Dow currently at 10430. The market has remained constrained in its range though, as Pending homesales decline, coming in at -8.8% vs forecast of 1.5%.
Earlier today BOE maintained its program, and did not announce any further QE, and maintained the base rate at 0.5% (however some have sugested that although furtehr QE may be required in the future, this was not the time to announce it with GBP/USD strugglign to hang on to the 1.5 mark).
Market fears over Greece have largerly subsided, over market perceptions that the ECB bail out is a certainty (although Trichet still has not provided any clear details), and a successful and oversubscribed bond auction today by Greece ios further evidence of this.
Quotes
FTSE 5543
Dow 10450
GBP/USD 15032
EUR/USD 13579
Gold 1133
USD 80.53
Scenarios
Non Farm Pay Rolls market Forecast:
Unemployment rate: 9.8%
Change in payrolls: -40K
With severe snow in some regions of the US during February the consensus is that it is likely that the job losses will be greater than previously forecast:
1) Non Farm Pay Rolls <-80K
Dow sells off initally maybe to 10250 region, or lower 10300. USD Index maybe toward 80.11, 79.90.
Both would be buying opportunities in my opinion, and I expect the Dow to rally back quickly due to the current positive market dynamic,and close out higher.
2) Non Farm Pau rolls between -50K to -20K.
No real change
3) Non Farm Payrolls >-10K
Dow rally 100 points to 10500 region, and if payrolls are positive over 10k then maybe a steeper rally, that should give back a small amount towards the close.
Dollar rally past 81, toward 81.50)
Also Goldman Sachs looks strong, having recently broken its 50 day moving average, having closed at $163.65 (from an Opening of $157.69). And may do well if Payrolls are at least neutral.
Earlier today BOE maintained its program, and did not announce any further QE, and maintained the base rate at 0.5% (however some have sugested that although furtehr QE may be required in the future, this was not the time to announce it with GBP/USD strugglign to hang on to the 1.5 mark).
Market fears over Greece have largerly subsided, over market perceptions that the ECB bail out is a certainty (although Trichet still has not provided any clear details), and a successful and oversubscribed bond auction today by Greece ios further evidence of this.
Quotes
FTSE 5543
Dow 10450
GBP/USD 15032
EUR/USD 13579
Gold 1133
USD 80.53
Scenarios
Non Farm Pay Rolls market Forecast:
Unemployment rate: 9.8%
Change in payrolls: -40K
With severe snow in some regions of the US during February the consensus is that it is likely that the job losses will be greater than previously forecast:
1) Non Farm Pay Rolls <-80K
Dow sells off initally maybe to 10250 region, or lower 10300. USD Index maybe toward 80.11, 79.90.
Both would be buying opportunities in my opinion, and I expect the Dow to rally back quickly due to the current positive market dynamic,and close out higher.
2) Non Farm Pau rolls between -50K to -20K.
No real change
3) Non Farm Payrolls >-10K
Dow rally 100 points to 10500 region, and if payrolls are positive over 10k then maybe a steeper rally, that should give back a small amount towards the close.
Dollar rally past 81, toward 81.50)
Also Goldman Sachs looks strong, having recently broken its 50 day moving average, having closed at $163.65 (from an Opening of $157.69). And may do well if Payrolls are at least neutral.
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