Happy 4th of July!!

Good Morning Traders,

As of this writing 3:30 AM EST, here's what we see:

US Dollar: Sept. USD is down at 95.970.
Energies: July Crude is up at 48.51.
Financials: The Sept 30 year bond is up 65 ticks and trading at 174.12.
Indices: The Sept S&P 500 emini ES contract is down 19 ticks and trading at 2085.50.
Gold: The August gold contract is trading up at 1335.40. Gold is 148 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is down- and crude is up+ which is normal but the 30 year bond is trading higher. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The indices are down and Crude is trading higher which is correlated. Gold is trading up which is correlated with the US dollar trading down. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don't have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.

All of Asia traded higher with the exception of the Singapore exchange which traded fractionally lower. As of this writing all of Europe is trading to the upside.

Possible Challenges To Traders Today

– Final Manufacturing PMI is out at 9:45 AM EST. This is major.

– ISM Manufacturing PMI is out at 10 AM EST. This is major.

– Construction Spending m/m is out at 10 AM EST. This is major.

– ISM Manufacturing Prices is out at 10 AM EST. This is major.

– Total Vehicle Sales – All Day.

Gold

We've elected to switch gears a bit and show correlation between Gold and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it's liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday Gold made it's move at around 10:30 AM EST after the economic news was reported. Gold hit a low at around that time and the YM hit a high. If you look at the charts below the YM gave a signal at around 10:30 AM EST and Gold was moving lower at the same time. Look at the charts below and you'll see a pattern for both assets. The YM hit a high at around 10:30 AM EST and Gold hit a low. These charts represent the latest version of Trend Following Trades and I've changed the timeframe to a 15 minute chart to display better. This represented a long opportunity on Gold, as a trader you could have netted about 50 plus ticks per contract on this trade. Each tick is worth $10. We added a Donchian Channel to the charts to show the signals more clearly.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday our bias was neutral as all the instruments we track were trading lower yesterday morning. Whenever you have a situation where everything is either higher or lower, there is no correlation and hence the neutral bias. The Dow closed 235 points higher and the other indices gained ground as well. Today we aren't dealing with a correlated market and our bias is to the downside.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Once again the markets traded higher even though there was no correlation. This can sometimes happen in a market that has no sense of direction. The economic news helped as Chicago PMI soared and Unemployment Claims were acceptable. Today we have economic news on the calendar but you should be aware that before a major holiday like the 4th of July most traders will want to exit early and clear out of "Dodge". This isn't unusual and should be taken with a grain of salt. We trust that you will have a safe and happy Fourth of July weekend, our next edition will be Tuesday, July 5th.