NFP Fails to Derail Markets

Good Morning Traders,

As of this writing 5:10 AM EST, here’s what we see:

US Dollar: Up at 84.060, the US Dollar is up 188 ticks and is trading at 84.060.
Energies: October Crude is down at 92.55.
Financials: The Dec 30 year bond is up 14 ticks and trading at 138.12.
Indices: The Sept S&P 500 emini ES contract is down 11 ticks and trading at 2003.25.
Gold: The October gold contract is trading up at 1266.90 and is up 6 ticks from its close.

Initial Conclusion

This is a nearly correlated market, unfortunately it is nearly correlated to the downside. 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 Singapore and Hang Seng exchanges which traded lower. As of this writing Europe is trading mainly lower with the exception of the DAX exchange which is slightly higher.

Possible Challenges To Traders Today

Treasury Sec Lew Speaks at 8:45 AM EST. This is major. Consumer Credit m/m is out at 3 PM EST. This could affect afternoon trading.

Currencies

On Friday the Swiss Franc made it’s move at around 8:35 AM EST immediately after the Non Farm Payrolls numbers came out. 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 about 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

On Friday we said our bias was neutral as it was Jobs Friday and we always maintain a neutral bias. The Dow gained 67 points and the other indices gained ground as well. Today we are dealing with a mainly correlated market, unfortunately it’s correlated to the downside, hence our bias is to the downside.

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

Commentary

On Friday we said our bias was neutral as it was Jobs Friday and we always maintain a neutral bias on that day. A neutral bias means the markets could go in any direction. At 8:30 AM EST the Non Farm Payroll numbers came out and they were sorely disappointing; 142,000 new jobs created versus 226,000 expected. At first the markets dropped on this news but then after 12 noon rose into positive territory and remained there for the rest of the session. We said in our Market Bias video that this could happen and sure enough it did. So what happened? This wasn’t good news yet the markets rose. I guess the market came to the conclusion that with such a poor report, the Fed won’t be in any hurry hike interest rates anytime soon. I would agree with that conclusion.

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