Markets Move, Despite Yellen

Good Morning Traders,

As of this writing 5:40 AM EST, here’s what we see:

US Dollar: Down at 80.565, the US Dollar is down 60 ticks and is trading at 80.565.
Energies: Aug Oil is up at 101.43.
Financials: The Sept 30 year bond is up 16 ticks and trading at 137.21.
Indices: The Sept S&P 500 emini ES contract is down 24 ticks and trading at 1968.75.
Gold: The August gold contract is trading up at 1303.20 and is up 34 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is down- and oil is up+ which is normal and 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 lower and the US dollar is trading down which is not correlated. Gold is trading higher 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.

Asia traded mainly lower with the exception of the Sensex and Singapore exchanges which traded higher. As of this writing all of Europe is trading is trading lower.

Possible Challenges To Traders Today

1. Building Permits is out at 8:30 AM EST. This is major.

2. Unemployment Claims are out at 8:30 AM EST. This is major.

3. Housing Starts are out at 8:30 AM EST. This is major.

4. Philly Fed Manufacturing Index is out at 10 AM EST. This is major.

5. Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.

Currencies

Yesterday the Swiss Franc made it’s move at 8:35 AM EST after the PPI numbers were released. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at 8:35 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a high at 8:35 AM EST and the Swiss Franc hit a low. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 12-15 ticks on that trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we said our bias was neutral which means the markets could go in any direction. The Dow gained 77 points and the other indices gained ground as well. Today we aren’t dealing with a correlated markets and our bias is to the downside.

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

Commentary

Yesterday we said our bias was neutral which means the markets could go in any direction. Why? Each and instrument was pointed higher yesterday morning and when they’re all pointing higher (or lower) there is no correlation. In any case, the markets opened fractionally higher and then at 10 AM when Janet Yellen’s testimony started, the market seemed to freeze and didn’t move at all. In my humble opinion I think Janet Yellen was invited to a barbeque, except no one bothered to tell her she was the main course as she nothing short of being grilled by the GOP Representatives. Apparently there is a bill in the House right that would limit the power of the Federal Reserve which quite frankly goes against their mandate established over 100 years ago in 1913. Can you imagine if during the financial meltdown in 2008 that the Fed would have to debate Federal Funds Rate reductions to Congress? If that had occurred we wouldn’t have bank accounts to deposit or withdraw funds from.

I wish Yellen had shown the same fervor and steadfast determination at this meeting as she has shown previously. She was defensive for the last two days and this is highly unusual for the Fed. So why did the markets move as it did despite Yellen’s testimony? The Smart Money aka institutionals wanted it to. They want to maintain a Dow at 17,000 and the only way to do so is to pump capital into the market. Today we have 5 economic reports, 4 of which are major. So time will tell how the market fares, post-Yellen…