Markets Leap into Q2

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Up at 98.880, the US Dollar is up 599 ticks and is trading at 98.880.
Energies: May Crude is down at 47.82

Financials: The June 30 year bond is up 1 tick and trading at 163.16.
Indices: The June S&P 500 emini ES contract is down 13 ticks and trading at 2072.25.

Gold: The April gold contract is trading down at 1178.80 and is down 60 ticks from its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and oil is down- which is normal and the 30 year bond is trading up. 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 Crude is trading down which is not correlated. Gold is trading down 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 mainly lower with the exception of the Hang Seng and Indian Sensex exchanges which traded higher. As of this writing all of Europe is trading to the upside with the exception of the London exchange which is trading fractionally lower.

Possible Challenges To Traders Today

FOMC Member Lacker Speaks at 8 AM EST. This is major.

FOMC Member Lockhart Speaks at 8:50 AM EST. This is major..

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

Chicago PMI is out at 9:45 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 around 10:20 AM EST with no real 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 10:20 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 around 10:20 AM EST and the Swiss Franc hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted 20 ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. 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 our bias was to the upside and the markets certainly didn’t disappoint. The Dow gained 263 points and nearly cracked the 18,000 level while the S&P gained 25 and the Nasdaq ended the session 56 points higher. 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

So after nearly a week of down sessions and down days the markets decided to reverse and go higher. But readers of this newsletter knew that at 4:30 AM EST yesterday. We said it would go higher because crude was trading lower as well as the Bonds and that typically is a strong sign for an upside day. Today marks the end of the 1st calendar quarter of 2015. We see the phenomena of window dressing return? We think so as this quarter wasn’t anything to rave about. But as in all things only time will tell.