Eco News Down, Markets Up

Good Morning Traders,

As of this writing 6:05 AM EST, here’s what we see:

US Dollar: Up at 81.130, the US Dollar is up 8 ticks and is trading at 81.130.
Energies: September Crude is down at 101.61.
Financials: The Sept 30 year bond is up 13 ticks and trading at 138.22.
Indices: The Sept S&P 500 emini ES contract is down 10 ticks and trading at 1970.50.
Gold: The August gold contract is trading up at 1308.02 and is up 49 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is up+ and oil is down- 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 down and the US dollar is trading up which is correlated. Gold is trading higher which is not correlated with the US dollar trading up. 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 higher with the exception of the Indian Sensex exchange which traded lower. As of this writing all of Europe is higher.

Possible Challenges To Traders Today

S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.
CB Consumer Confidence is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at 9:45 AM EST just prior to the Pending Home Sales numbers. 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 9:45 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 9:45 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 10 ticks on this trade. Not much to speak of but yesterday was an unusual day. 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 to the upside as Europe was trading higher and the Financials (both the USD and Bonds) were correlated to the upside. The markets didn’t disappoint as the Dow gained 22 points and the S&P gained 1 but the Nasdaq dropped 5 points. Today we aren’t dealing with a correlated market and our bias is neutral. A neutral bias means the markets could go in any direction.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said the markets would rise and for the most part they did. However the day did not start that way. At 10 AM we had Flash Services PMI and Pending Home Sales, both of which did not meet expectation. In fact the Pending Home Sales numbers were so deplorable that the markets dropped and didn’t rebound until yesterday afternoon. You can’t really blame traders as they see headlines that state “Stock Bubble is Beyond 1929 and 2007″. If they could ever pick a scarier headline, I don’t know what it is. Mention 1929 in any headline and that’s enough to keep capital sidelined. With those Pending Home Sales numbers as they are, I don’t think we’ll be seeing the Fed raise rates anytime soon. That should bode well for Wednesday’s FOMC Meeting.
We knew yesterday that the markets would rise, not because of the economic reports but because our rules of market correlation told us so.

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