Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day
Good Morning Traders!
Wow! The Yen surged almost 3% because the Bank of Japan did not add to an already incredibly large stimulus program. We were profitably knocked out of our short Yen trade 2nd contract runner as our protective stop hit (the first contract provided gains over $1K+). Bottom line: Dangerous holding a currency through a central bank policy statement.
This sudden Yen surge had the immediate effect of dropping equity index futures around the globe. The Nikkei 225 fell the hardest dropping 3.6%. Now get this…the Japanese government’s Pension Investment Fund is in the top 10 holders of the Nikkei 225 stocks (reported by Bloomberg). So the actions of the market, based on the action of the Bank of Tokyo just blew hole in the side of the Japanese Pension Investment Fund.
The S&P 500 did not need this, and certainly not the Nasdaq 100. The tight range up and down action in the ES following crude because nothing else matters, fell below our 2075 line of support. This line is trying hold prior to USA first quarter GDP number released today at 8:30AM ET.
If the ES moves lower, we expect 2061.75 area as next level of support. Obviously if the ES rises, price shall re-take the battlefield 2084/2086 area with a next higher resistance set at 2100 and 2110.
Remember, all it takes for large traders to move the market is work opposite the news. So let’s say the USA first quarter GDP meets consensus of 0.7%. We could easily see a strong rally based on the idea “it could have been worse!”
Consensus range for today’s 8:30AM ET GDP report is from 0.1 to 1.1%, which is a polite way of saying, “no clue.” Prior GDP reading was 1.4%.
Bonds rallied Wednesday off support with follow-through “safe haven” run overnight as global equity index futures fell. Bonds were boosted by the FOMC statement calling for only two rate increases for 2016 rather than the original four planned.
The FED said “The Committee continues to closely monitor inflation indicators and global economic and financial developments.” This statement provides cover to continue with no policy change. Does anyone really see the global economic picture changing between now and June?
Considering we are in an election year, it is doubtful the FED will raise rates before November even though a June potential rate increase was discussed. We also have a strong track record of the FED refusing to upset the holiday shopping season. This places a potential FED rate increase in line for December in my opinion. US dollar fell after the FOMC statement and fell overnight as forex traders issued their opinion driving US dollar lower. Obviously gold rose as US dollar fell.
The stronger the GDP reading today, the more likely bonds can give back some of the over-night gains. The weaker the GDP reading, the more likely bonds can continue moving higher as a general rule.
Lower than expected GDP might even take the wind out of the sails of crude’s rise IF traders infer lower GDP means lower energy usage. We know what happens to equity index futures if crude moves lower. Crude’s price strength is based upon strong trend and momentum fed by the large funds following normal seasonal trend. Yesterday’s EIA crude report ADDED inventory and debunked the private sector API report calling for a crude inventory draw down. Crude rose as inventories hit another record at 540.6 million barrels.
- Good news out of Ford today showing record profits.
- Facebook stock pops on earnings surge.
- Dow Chemical margins rise to decade high (Reuters).
- Adding to AAPL’s woes is a report showing global cell phone shipments fell for the first time on a year over year basis down 3%. This news suggests product life cycle moves into maturation stage. Samsung sold the most followed by Apple.
- Merger news – Abbott buying St.Jude Medical for $25 billion. Markets love mergers!
- SpaceX won an $83 million contract to launch a GPS satellite breaking a Boeing-Lockheed monopoly (Reuters). Same service…cheaper price…love it.
8:30 GDP Q1
8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
11:30 Results of $15B, 2-Year FRN Auction
1:00 PM Results of $28B, 7-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet<
Nikkei 225 has a flash crash of over 3% is the shot heard around the globe taking down equity index futures in Europe and USA. Up to USA traders to reverse the tide. Yesterday a potential reversal day in NQ.
VIX futures barely moved remaining in complacency.
Natural gas lower back into previous side-way consolidation range.
Gold off overnight highs, yet above our 1253 line in the sand. Silver follows incrementally. Copper lower.
Grains dangerous. Soybeans have classic continuation triangle price pattern.
Softs are quiet. Coffee experienced a large whack on Wednesday as only coffee can do.
Bonds higher, yet lower off overnight knee-jerk high. Most likely profit-taking in front of USA GDP reading.
Canadian dollar super quiet. Aussie, incremental green looks weak.
Pound incremental green.
Euro 4 days of gains. US dollar has 4 days of losing price action.
Think About This!
USA traders have to react first to the Yen. A rising Yen is always detrimental to risk acceptance. Traders then will react to USA first quarter GDP. Be careful in the first 15 minutes of day trading equity index futures.
Have a great trading day!
To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.