Dow Regains 18K

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Up at 95.620, the US Dollar is up 224 ticks and trading at 95.620.
Energies: June Crude is up at 59.17.
Financials: The June 30 year bond is up 6 ticks and trading at 157.26.|
Indices: The June S&P 500 emini ES contract is up 1 tick and trading at 2101.75.
Gold: The June gold contract is trading up at 1181.50. Gold is 70 ticks higher from its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and oil is up+ which is not 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 up and Crude is trading up which is not correlated. Gold is trading up 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 Hang Seng and Singapore exchanges which traded fractionally lower. Europe is currently trading mixed with half the exchanges higher and the other half lower.

Possible Challenges To Traders Today

- Factory Orders are out at 10 AM EST. This is major.

- FOMC Member Evans Speaks at 12:25 PM EST. This is major.

- Loan Officer Survey. This is major.

Currencies

On Friday the Swiss Franc made it’s move at around 10 AM EST immediately after the economic news 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 10 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 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 plus 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

On Friday we said our bias was to the upside and the markets didn’t disappoint. The Dow gained 183 points and the other indices gained 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

Just when we thought everything was dire and the sky was falling, the markets gain ground. The Dow not only gained 183 points but also regained its 18,000 mark crown. This is significant because 18,000 is now the threshold for the Dow index. Interestingly enough with all the economic news reported on Friday; none of them beat their expectation. Some came close as in Auto Sales with 16.5M sold versus an expectation of 16.9M but none met or exceeded expectation. This give credence to the theory that the more bad news reported, the less likely the Fed will raise rates. I would say this is significant as it’s happened once already in 2013 and if you look at Total Vehicle Sales they would’ve been worse were it not for low interest rates. Time will tell if this theory is correct and we will monitor for any changes.

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