US GDP numbers beat expectation Dow touches 11206

Q2 US GDP estimates were revised up to 1.3% beating expectations of 1%, and the Dow rallied to touch 11206 as initial jobless claims also came in better than expected . It later sold off reportedly as Netflix made big declines and brought down a lot of big tech names with it, and the Dow revisiting the 11,000 zone, before bouncing back to 11190 at present.

11th October will kick off earnings season for Q3, I am reluctant to make a medium term (1-2 week, 300 pip stop) type of trade until further clarity over the Euro Zone solution comes available in the coming days. However regardless I see good odds of an earnings beating estimates trend in results over the coming weeks to be a catalyst to take equities higher.

Technically looking at charts, yet again, I reiterate, trend line support from March 2009 lows seem broken. However this was also the case in August 2010, however when bernanke implied QE2 markets had to move higher, and if Merkel shows complete determination to support Greece, and the plan is credible enough, then market will rally.

Name Price Chg %Chg
FTSE 100 5196.84 -20.79 -0.40%
Dow Jones IA 11153.98 143.08 1.30%
NASDAQ 2480.76 -10.82 -0.43%
DAX 30 5639.58 61.16 1.10%
CAC 40 3027.65 32.03 1.07%
AEX 473.62 6.03 1.29%
GBP/USD 1.560 92/13 0.01 0.38%
GBP/EUR 1.14 85/92 -0.00 -0.08%
EUR/USD 1.35 87/89 0.01 0.48%
USD/CHF 0.89 74/78 -0.00 -0.51%
USD/JPY 76.7 92/99 0.27 0.36%
GBP/JPY 119.8 55/05 0.89 0.74%
WTI $/barrel 83.11 2.50 3.10%
Gold $/oz 1618.95 30.40 1.91%
Silver $/oz 30.635 1.46

COUPON MATURITY PRICE/YIELD PRICE/YIELD CHANGE TIME
US 10-Year 2.125 08/15/2021 101-04+ / 2.00 -0-04¾ / 0.016
2-Year 0.125 09/30/2013 99-23½ / 0.26 -0-00¾ / 0.012 16:59

What now?
Wait and see. No change. However long dow short dollar looks on for the coming weeks.

US GDP tomorrow-Buy Time?

So markets rallied yesterday with "growing optimism" over a Europackage great enough to bail out Greece, and convince markets that Spain and Italy will also be manageable.

The dow rallied to 11300, the FTSE to 5249, with talks over the potential package and news of Geithner's added weight on the issue, emphasising the importance of Europe to reach a decision quickly and raising hopes for a TARP like eurozone program.

Markets sold off later today however, as the hopefuls become impatient.


Dow 11030
FTSE 5161
Gold 1600 (down with equities, from 1650 earlier today)
Silver 2980
eur/usd 13543
gbp/usd 15576

German unemployment out tomorrow Morning. And US GDP at 12:30. I will be looking to buy in at some point bwetween 11,000-11090. Stop 50 points, to target a potential 250 point rally if GDP beats estimates of 1.2%, which I think is very strongly possible! Given how market decliens tend to affect estimates, I would not be surprised if it has created an overly pessimistic bias, and would also be expecting earnings season coming up to have good odds of being above consensus.

Picture says it all..Getting ready to long dow, short dollar in the coming weeks..Same old trade, same old traders...Let's go.

Twist again..Like we did last Summer?

Last Change % Chg
Stock Indexes Last Change % Chg

DJIA* 11043.86 272.38 2.53
S&P 500* 1162.95 26.52 2.33
Japan: Nikkei Average* 8374.13 -186.13 -2.17
Stoxx Europe 600* 220.28 4.09 1.89
UK: FTSE 100* 5089.37 22.56 0.45
EUR/USD 13543
GBP/USD 15564
Crude 8145
Gold 1627
Silver 3070
US 10 Yr 1.9%
US 2 Yr 0.23%
US 30 yr 2.99%

Following last weeks announcement by the FOMC, the so-called "TWIST Operation", whereby the FED will purchase longer term treasuries and sell the shorter end (400 billion of each), combined with continuing fears over Greece defaulting, and slowing Chinese GDP estimates, markets were left feeling underwhelmed. The Dow touching 10600 on Friday, and opening lower on Monday breaking into the 10500's.

Major declines were seen in Gold and Silver also, noteabley similar to September 2008, where large de-risking was seen. With alot of "cheap money" borrowed on the short end, having been parked in profitable gold trades, some say this may be one of the causes of money being pulled out of gold and silver (along with potentialy higher margins).

Having reached a low of 1530 and 26 dollars respectively, both have moved higher following news of a European "TARP" fund, as a final decisive action to stem any doubts about whether GREECE will be fully backstopped or not..

Also important to note is that the DOLLAR has, recently, AT LAST been catching a safe haven bid. With the Dollar index having broken through 78 level. Earlier in the year, the events in the middle east, and even the Eurozone situation failed to trigger significant dollar buying, with the American economy beginning to lag, as also the deficit ceiling raised fears over the US's ability to meet its obligations (or as was portrayed in order to get the bill passed in congress).


Ok, so whats key here? From a technical perspective trend line bullish support has clearly been breached for the Dow, and many commodities, and the Dollar looks potentially strong.

A KEY DRIVER of Commodities was the opinion that QE3, would follow QE2, and then QE4 and so on, as BERNANKE was deemed certain to get backing for continuing easing. The twist operationk, and no NET buying/easing, came as a surprise for the Dollar bears, with the Long Dow short Dollar trade being the PRIMARY DYNAMIC for the market the past 2 years (and also prior to the crisis), this may make things tricky now to anticipate market behaviour.

In terms of Currency, with fears growing of a global slowdown, and slowing inflation pressures, many of the Asian and Commodity based countries which had raised rates strongly and boldly now looking under pressure to cut, to ease, and allow their countries to maintain growth.

From a fundamental point of view, whether the corporates will continue to beat earnings estimates, I am unsure of. They have been beating estimates consistently now since March 2009, whether an anomalous or inflexionary under performance is due now, becomes something to keep in mind.


Sentiment/Risk Reward
With the Dow breaking through 11,000 again now,the momentum is definitely upward with strong support found at the 10500 level. Gold also, looks likely to challenge the higher 1600 range, potentially 1690's tomorrow. However given the uncertainty over potential news relating to the Greece situation, markets can swing back sharply.

From a risk/reward point I see no compelling trades to be made right now.

However if there is a greater perceived certainty with more information relating to Europe, a potential medium term bottom may be put in place in the coming days, and if that were to happen, I would be looking towards Dow 11500, FTSE 5300, and there are numerous mining stocks such as Xstrata at £8, which could provide good opportunities.

Short the Dollar-Long the Dow

This week saw the first ECB rate hike since 2008, with a 25bps rise. Gold at a new high of $1475, Silver hitting $40 an ounce, EUR/USD 14460, GBP/USD 16381.

NOTE the red candle with the dollar breaking 75. I dont know much, but I know that this is BEARISH, and I would be looking fo rthe dolalr to go down at least another 2-3% this week alone, and look for a retest of 70 on the index by June.

There has been speculation over whether, with improving US economic indicators, QE2 would be wound up earlier before June. I would contend that it is unlikely. And even if it were, would only provide a momentary bounce to the dollar.
While the dynamic remains sell dollar, buy dow, this will hold til the Fed begins rate increases I think.

With Q1 earnings set to come out, this will likely be the next up move for the Dow.
Market moves affect external reality, whether this move is true, or a false premise, seems this commodities bull market is set to march on.

Quotes:
Dow 12378
FTSE 6036
EUR/USD 14458
GBP/USD 16378
Crude 113
USD/JPY 8488
US 2yr 0.75
US 10 Yr 3.625
US Dollar index 74.85

Trades:

1)With Q1 earnings on the horizon, I think it is again more liekly fo rhte dow to outperform the ftse (which has seen significant resistance around 6000).

Long the Dow at 12378, Stop 12000, Target 13000

2)Short the Dollar Index at 74.85, stop at 76, Target 73

US Dollar update

Quotes:

FTSE 100 6003
Dow 12227
GBP/USD 16263
Gold 1412
US 2 Yr 0.68
US 10 Yr 3.43
Crude oil 96.87
US Dollar index 76.88



Middle east riots, Libya, Egypt, we saw gold carry from 1350 all the way back up to 1410, where it is now. But nobody bought the dollar? The traditional safe haven. In 2009, even a whisper of korea launching test missiles would have given the dolar a 1.5% one day rally..But why then, now, does nobody want the dollar..

Conventional arguements go along the lines of, the market fears US intervention in the middle east, which is likely to be bearish for the dollar (i.e. more money spending etc). Really? I don't believe that..

US Unemployment rate has come down to 9%, economic indicators have been performing reasonably well, Q1 corporate earnings outperformed (as they have been doing right through this bull market since March 2009). But, who, which trader, would be confident of buying the dollar, now, on the possibility that the market, will being to price in rate increases before QE2 is over (i.e. before the June schedule is complete). There may be some of course, but the value play would be closer to the time, and when there is a key change in the trend of the dollar (i.e. break a critical resistance level).

As I had mentioned in my previous blogs, I was waiting to see what the DYNAMIC would be. From March 2009-Nov 2009 (the core of the early stages of the rally) with the dow touching 10,000 the dollar had continued to be sold, as the Dow was bought.
As much, or more as any other analysis I could provide, on GDP, deficits, to me this was, and remains key. Let us make no mistake about it, even through the dollar bullish period from 95-97 (the Asian crisis, and funds flowing out of the overheated tiger economies into the outperforming US markets), and the Dow rallying with the dollar into 2002, to reach a decad ehigh of 120. Let us make no mistake about it, the US Dollar has been in a bear market for 30 years, coincidentally, along side the decline in inflation index levels, and the 30 yr bull market in US treasuries. So far this year, the dollar weakening has been supportive of the Dow, with the Dow currently at 12300, and the Dollar index at around 76.90. However there have also been occasions with economic indicators beating expectations causing the dollar to rally also. So there is a chance the dollar could rally with the dow in the future. However I dont think the correlation is likely to be strong as of yet.

Generally one could consider that as the fed funds rate has been in a "discrete" downward trend as one could say, thus the interest rate appeal of the Dollar has been decreasing along with this.



With Trichet, talking the talk, about meeting inflation targets in the eurozone (as there records would show), they even raised rates in early 2008! The market has begun to price in earlier rate increases in the eurozone, as well as in Britain (as I had mentioned in earlier posts, with CPI contuing to beat the 2% target, and registering at 4% for January 2011).

Now while it is true that the US dollar maintains its bullish trend, from My 2008, when the index reached a low of around 70, and proceeded to make higher lows, we are now at a critical point, on the trend line support, whereby a move lower, is likely to negate this bull market trend, and would be a clear indication, for an entry point to go short the dollar.

Aside from this, however, there is short term resistance on eur/usd at 1.40, and GBP/USD at 1.63, and upcoming debt refinancing in the eurozone which could cause a sudden burst in bearish Eurozone news, and be dollar positive.

However I would contend that since the Euro reached its lows of 1.19 in June 2010, with fears over Greece defaulting, since then with news of Ireland and so on, the market has become used to it, and the Euro held even 1.29 in Novemeber 2010. I would be looking at the possibility that these events will be opportunities to sell the dollar, at least before QE2 has come to an end in June. And then we will talk of the possiblities of the US Dollar bull market, and even then only enter positions, when it breaks above 80, and looks to challenge higher.

Trade recommendations:
As far as the Dow I am looking for a close above 12300 to signal its continuation to 12700. However with potential Eurozone news to come in March, and non farm pay rolls on friday, I would be looking to see how it plays out, before getting into the market.

1) Short Eur/USD, Long GBP/USD. I think that the potential for rate increases in the UK are higher, given CPI coming in at 4%, and likely to continue to beat expectations. Although voting member Sentance is soon to step down, I still think that the market will continue to perceive BOE rate rises being necessary (although personally I reckon they will do their best to hold on, and down play CPI as much as they can, maybe next month they'll attribute some of it to abnormally high oil prices).
Also form a technical perspective the risk reward ratio looks good, EUR/USD has resistance at 1.4, and also there is potentially bearish debt refinancing news to come in the coming weeks. GBP/USD a close above 1.63 would be indicative of a potential move to 1.67.

Buy GBP/USD if @ 16300 Stop 16100 Target 16700
Sell EUR/USD @ approx 13813 Stop 14050 Target 13450

Quick update

NFP weaker than expected at 100k jobs added, Dow
sold off, currently at 11639.

Market looks technically weaker like it wants to
retest 11400's.

Dollar sold off on result , but regained
strength after weaker than expected Euro Zone
data.

Eur/Usd at 12912 at present.

Alcoa earnings due today. Key will be to
see what dynamic is, whether the dollar moves
with the Dow or regains the stronger negative
correlation seen after qe2 began to be priced in.

NFP-Stay long the dow-Time to Buy the Dollar again?

Once again, a brief post.

Quotes:
Dow 11697
EUR/USD 12999
GBP/USD 15467
USD Index 80.85
Crude 8814
US 2Yr 0.66
US 10Yr
Gold 1371

Key resistance for EUR/USD 1295, having just broken 13000, the common reaction, everyone goes short, and it pops back, same as in November. However having already tested 12990 in Nov, a strong NFP, and continuing fears over the Eurozone situation, with yields on Spanish, Irish and Portuguese bonds rising, it seems the odds favour a break below 12950, initially to 12750, and then long awaited retest of 1.25 from earlier in 2010.


Consensus for NFP is 150K added. Even significant underperformance of this result, say 50K added, any sell off in the dow (a sell off of more than 75 points is unlikely in my opinion), however any sell off such that the Dow does not break below 11300 is a buy, with earnings season due to start (and in my opinion once again likely to outperform estimates.

Potential risks are that the ratio of bulls to bears at present is significantly high, which usually does call for a pullback, however with Q4 earnings on the horizon, I must remain bullish.

Seeing the Dollars reaction to NFP, a break of th eindex above 81, is likely to be a buy, I would start to accumulate, and if the Dollar does continue to rally with the dow into earnings season, then I would take this as a significant indication of the trend to continue into the year, and look to add to my position.

I see the potential for Gold to be shorted into this result, to target 1330 by close, as many who placed longs in the 1400 region earlier this week, will be forced to close out their positions as the dollar rallies.