The Fed Speaks, Markets Listen

Good Morning Traders,

As of this writing 5:30 AM EST, here’s what we see:

US Dollar: Up at 82.295, the US Dollar is up 15 ticks and is trading at 82.295.
Energies: October Crude is down at 92.76.
Financials: The Sept 30 year bond is down 8 ticks and trading at 139.14.
Indices: The Sept S&P 500 emini ES contract is up 12 ticks and trading at 1986.50.
Gold: The October gold contract is trading down at 1280.00 and is down 143 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is up+ and oil is down- which is normal but the 30 year bond is trading lower. 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 up and the US dollar is trading up which is not 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 higher.

Possible Challenges To Traders Today

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

2. Flash Manufacturing PMI is out at 9:45 AM EST. This is major. 

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

4. Existing Home Sales is out at 10 AM EST. This is major.

5. CB Leading Index m/m is out at 10 AM EST. This is major.

6. 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 around 8:40 AM EST with no economic news in sight. 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 8:40 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 8:40 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 10-12 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 to the downside as both the USD and the Bonds were trading higher. The Dow gained 59 points, the Nasdaq dropped 2 and the S&P gained 5. Today we aren’t dealing with a correlated market however our bias is to the upside.

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

Commentary

Yesterday we said our bias was to the downside as the Financials (USD and Bonds) were trading higher. However subscribers who listened to our Market Bias video also heard us say “we need to take this with a grain of salt” as yesterday the FOMC Meeting Minutes were revealed. As it turns out the Fed voted 9-1 to keep the Fed Funds Rate as they are and provided no timetable as to when interest rate hikes might occur. The markets received this positively and therefore rose. The good news is the Fed is looking at things like the long term unemployment rate and knows that this so-called “recovery” is tepid at best. Today marks Day One of the Jackson Hole Symposium and tomorrow we’ll hear Janet Yellen speak. Once again we expect all analysts and pundits to be listening for clues, clues that may never come…..