The Rooster Call: Recent Volatility Has Nice Momentum

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

This morning we have the Euro pushing new highs and crude along with equity index futures pushing lower.  The volatility has  nice momentum and let’s hope this carries into the main trading session for day traders. We have a smorgasbord of news…let’s begin.

  • Last night Chinese PMI came in at 49.50 and recall below 50 shows contraction for the world’s second largest economy.
  • Russia’s central bank increases interest rates to 17% as a defensive move supporting the currency.  Speculators have destroyed this attempt dropping the rouble almost 12% as the currency implosion continues.
  • This action in the rouble causes a mass selling exit of Russian stocks especially by funds. The fear is currency controls as the next step by the Russian central bank.
  • US “CL” crude fell to $53.80. The drop started sometime after 2AM ET reflective of Brent dipping below $60.00. Separately, Bloomberg says US oil firms will resist OPEC’s price war keeping production high.
  • Fear in the air big time as the Russian currency tanks driving up US bonds in the overnight starting at 3AM, then launching again at 6:30AM ET. German Bunds shot higher in bid for safe harbor.
  • Gold gave a whack yesterday lower, yet fear has pushed gold higher with bonds starting at 6:30AM ET.
  • Equity index futures fell around the same time.
  • At precisely 3:15AM ET, the US dollar drops, while Yen and Euro start climbing.  We had news of the Euro zone trade surplus touching a new record which is currency positive for Euro. The surplus beat expectations no doubt driven by lower crude prices.
  • The ZEW report on economic conditions in Germany moved higher to a level not seen since last Spring (Financial Times). This is Euro currency positive.
  • Euro zone PMI rose from 50.1 to 50.8.  Recall anything below 50 signals economic contraction.  This rise is in PMI is like a fresh breath of air and is Euro currency positive. France remains in contraction, but was “better than expected.” German PMI was lower.

The junk bond market has dropped precipitously as concerns of energy related junk bond issuers will be unable to pay their obligations. Watching the junk bond market is a key indicator for risk acceptance/risk aversion. I watch the exchange traded funds JNK and HYG.  When these turn higher we generally see equity index markets rise.

In another senseless act, the Taliban strikes again killing 126, possibly more; mostly high school children in Pakistan.

Today’s Reports and FED Activity
The FED starts its monetary policy meeting with decision and statement on Wednesday. All focus is on the wording of the statement regarding interest rates. Possible knee-jerk reaction with the statement and Yellen’s press conference. 

7:45 ICSC Retail Store Sales
8:30 Housing Starts
8:55 Redbook Chain Store Sales
9:45 PMI Manufacturing Index Flash

Overnight / Pre-Market

  • Equity index futures are recovering from a serious early morning drop. We discussed ES at a bench mark on daily chart as a major event in your brief video last night. Keep the price level on your chart and if you day trade, refer back to price action on the daily.
  • VIX higher.
  • Bonds higher.
  • 10-Year Note follows 30-year bonds and uses less margin. The tick value is cheaper too.
  • US dollar tests 85 support lower today.
  • Euro higher on economic reports.
  • Yen higher “fear trade?”
  • Aussie higher on US dollar falling…yet the Chinese PMI will likely push Aussie lower in my opinion.
  • US crude touches $53.70.
  • Gold recovered from yesterday’s whack, then lost half of the recovery in volatile trading.
  • Copper should have fallen more on China, yet remains an enigma and study in levitation.
  • Feeder cattle drop hard in three days reflective of cattle supplies coming on line. (Wait, we don’t watch meats).
  • Cotton spins in consolidation lower today.
  • All softs lower.
  • Corn and Beans incrementally lower. Wheat higher as traders think Russians will not export.

Think About This!
We like checking out seasonal influences in our Trader Weekly Review each weekend in addition to our normal technical analysis routine. This practice just keeps us aware of the bigger picture.  We don’t live our life on seasonal trading, but we note anytime a seasonal effect matches with a technical reason for taking a trade, we generate an additional quiet confidence.

Have a great trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.