Macro Morning: Stocks up again

Stocks were higher again in the US and Europe with US stocks in particular benefitting from better than expected reports by Pfizer and oil refiner Valero combined with the strong rise in the Case Shiller home price index of 5.5% more than offsetting the very weak consumer confidence data for January which fell to 58.6 from 66.7 in December.

Equally we could argue that the rally in US stocks is not only in spite of weak consumer confidence but also the poor results from Ford which was both concerned about volumes generally and its European operations specifically.

The best thing to say is that this is still a relief rally and the onus is on the bears to make the case. For me it is a simple case of pessimism fatigue – we see this in markets all the time and the fact the world didn’t end and the data has been printing a little better in Europe in particular aided and abetted by the Fed’s bond buying is driving stocks everywhere higher.

But lets look at what is going on in Europe because it is both instructive insofar as explaining market psychology for stocks and the euro’s recent out-performance to the US dollar. The chart below is of the Citibank European Economic Surprise Index.

You can see the sharp rise in the red line on the right hand side of the chart which reflects the fact that European data has recently surprised sharply to the topside. In November the Euro Eco Surprise low was -34.4 while as of last week it was +66.5. So it’s not hard to understand the euro’s bid tone or the continuing relief rally in European stocks and for European sentiment.

Citibank Euro Economic Surprise Index

However, the Fed is a big risk to this rally tonight if they hint at a withdrawal of stimulus or if there are too many dissenters from whatever decision they make. But this is also the first meeting of the 2013 FOMC membership which on the face of it appears more dovish than the FOMC membership was in 2012. So I’d be surprised if there is any deviation from its bond buying program just yet.

Turning to stocks the FTSE hit another multi-year record which from where I sit watching the UK economy sink into the mire, watching the Citi Eco Surprise index sink from +80 in November to -27.6 last week, wonder how this is occurring but then again the Fed’s buying and the Euro relief rally are lifting all boats.

At the close the FTSE was up 0.71% to 6,339, the DAX rose 0.20%, the CAC was up 0.14% and Milan and Madrid were roughly unchanged.

In the US, competing company reports were resolved in the favour of the bulls in the blue chip sector with the Dow up 0.48% to 13,949 and the S&P 500 up 0.45% to 1507 and within striking distance of the all-time high. Is it stretched or are we on the verge of the new bull market – my trend following systems are long but as noted in this morning’s other piece it might be cheap to buy some puts at the moment.

In Asia yesterday the Nikkei was up 0.39%, Shanghai rose 0.53% but the Indian and Singaporean markets were both lower falling 0.56% and 0.42% respectively.

Euro rallied again overnight but has not been able to push through the 1.05 region just yet making a high of 1.3496 from the low of 1.3413 to sit up 0.26% at 1.3489 this morning. GBP had a better night of it as well up 0.4% to 1.5756. This is a very good performance after a low of  1.5683 and the rally of 90 points roughly to 1.5772 suggests that GBP is trying to base. A move through 1.5785 is however needed to confirm.

The Aussie had a good bounce after a rough ride last week and candlestick aficionados will just love the pattern for a base from Monday’s trade. Having made a low at 1.0401 the Aussie sits up 0.45% at 1.0461 and just below the high of the past 24 hours of 1.0470. USDJPY had a 70 point range and sits at 90.68 down 0.17% on the day.

Crude was up again rising 1.02% to $97.46 and only 58c bbl below the September high. Gold bounced, kind of anyway, up 0.50%, an old trend line we have on our charts and which has given support on a closing basis since the lows in late December. Silver continues its role as the high beta precious and rallied 1.31% overnight to $31.06 oz.

Cotton rallied hard again up another 1.67% but Sugar reversed falling 2%. Corn, soy and wheat were within 0.2% up and down of flat.

Lets have a look at some Meta 4 charts from my  AVATrade platform.

EUR/USD: 

Looking specifically at the euro it feels like the next 24 hours are going to be make or break for the rally that is currently underway. The flow of economic data is in favour at the moment and all that might be needed is a dovish statement from the Fed to kick it sustainably through 1.05 and through the reverse head and shoulders pattern. This would be very bullish for euro.

Shorter term support for the euro is 1.3460 and then 1.3404/14:

eur, eurusd, euro, euro (eur) price quote

AUD/USD:

The Aussie has based nicely as noted above and yesterday’s reversal was a very strong one technically with what looks to me like a morning Doji star but also yesterday’s price action completely reverses Friday’s weakness. The 4 hour charts likewise suggest further topside with a run toward 1.0492 and probably through 1.05 in the next 24 hours:

aud, audusd, australian dollar, australian dollar price quote, audusd

Data

Building permits in New Zealand and then Japanese retail sales today before Spanish GDP tonoght in Europe. Business confidence in Italy is to be released and then Mortgage approvals and Consumer Credit in the UK before the Portugeause and Eurozone confidence data is released. But in truth nothing matters until the Fed and the US preliminary GDP data is released.

Could be an interesting night.

Twitter: Greg McKenna

Here is how the markets looked at 7.29this morning.

 

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Comments

  1. Hello MB Oracle 🙂

    I am quite new to this stock investing. I have a question..i might come across as dumb, but i still need an answer 🙁

    Lets say, I bought 100 Cochlear(COH) shares at $60. Now its trading at $80. My investment would be currently running at +$2000 paper-profit. What should be my next course of action,
    1. sell all and realise profit
    2. sell some
    3. buy some more

    If the main goal is to build a investment portfolio, then should “sell” take a back seat untill i reach my investment-goal (in terms of dollar figure)?

    • Deus Forex Machina

      Hi Virus – we aren’t really set up or indeed licensed to give specific investment advice so I’d refer you to your adviser for that.

      But can speak about my approach to investing. I am at all times a barbell – I have large cash holdings and then I trade a portion of the portfolio along the lines of my systems both trend following and subjective.

      I am in and out of things as the market dictates. I trade the market in front of me and I never try to dictate to the market.

      At present there are risks to the market but there is also significant upside so I stay long systematically and buy puts subjectively as insurance.

      As a newby to investing could I suggest Jesse Livermore’s book – Reminisences of a Stock Operator to kick you education off.

      Here is a link to Dymocks http://www.dymocks.com.au/productdetails/productdetail.aspx?r=9780471770886#.UQiQX7-ceSo

      Cheers

      Greg

      • Thanks DFM for the pointer.

        I was not specifically asking abt COH, just in general as to what to do when running paper-profit?
        Because I think I know what to do when running paper-loss, i.e. if loss goes below ‘my-thresold’ then exit. But not sure about paper-profits!

        Thank you 🙂

    • ^^What Greg said.

      I bought COH at $45 and then up to $55, not selling right now for several reasons, mainly because its in my super (and I admit I love the company, the ASX200 should be full of Cochlears, not banks and miners)

      Its my only “long term holding” – apart from some agricultural stuff – as I am a very very short term “investor” in super (longest holding is about 3 months) but I’ve hedged the small dips along the way with short CFDs, and will do so if it corrects any further.

      My “advice” is you really need to work out your investment strategy, which would answer these questions for you in advance.

      Investing and speculating (but I repeat myself) are all about psychology – the market but more importantly how you react/deal with situations.

      Experience is the greatest teacher, but after a few expensive lessons, you shouldn’t have to ask this question.

      Cheers

      • Thanks Chris.

        I remember reading somewhere (might be here at MB) that the era of “buy & hold” is gone.. its all about short-term play.