Waiting on the Fed

Good Morning Traders,

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

US Dollar: Up at 82.080, the US Dollar is up 143 ticks and is trading at 82.080.
Energies: October Crude is up at 93.13.
Financials: The Sept 30 year bond is up 6 ticks and trading at 139.31.
Indices: The Sept S&P 500 emini ES contract is down 10 ticks and trading at 1974.75.
Gold: The October gold contract is trading down at 1294.50 and is down 14 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is up+ and oil is up+ which is not 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 lower which is 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 mixed with half the exchanges higher and the other half lower. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

1. Crude Oil Inventories are out at 10:30 AM EST. This could move the Crude Market.

2. FOMC Meeting Minutes are out at 2 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:35 AM EST after all the economic news was reported. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 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 low at 8:35 AM EST and the Swiss Franc hit a high. 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 shorting opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this 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 as all the futures were pointed higher. A neutral bias means the markets could go in any direction. The Dow gained 81 points 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

Yesterday all the instruments we track were pointed higher and we gave a neutral bias. We also stated in Market Bias video that the best course of action was to wait until all the economic news was reported and then decide accordingly. You cannot have market correlation when every instrument is pointed in one direction (either up or down). This only means that the market hasn’t decided or given any commitment as to direction. Well the news came out at 8:30 AM EST and didn’t disappoint. Building Permits and Housing Starts were both higher and CPI appears tame. This is actually good for those who want the Fed to stay their hand when it comes to rate hikes. Today of course we have the FOMC Meeting Minutes out at 2 PM EST and of course every pundit and analyst will dissect every word to see if there’s any hint as to a rate increase. I personally don’t think so but who knows what the pundits will say?