Dow Regains 18K – Day Two

Good Morning Traders,

As of this writing 4:40 AM EST, here’s what we see:

US Dollar: Up at 96.060, the US Dollar is up 393 ticks and trading at 96.060.
Energies: June Crude is up at 59.24.

Financials: The June 30 year bond is down 1 tick and trading at 156.24.
Indices: The June S&P 500 emini ES contract is up 6 ticks and trading at 2110.75.

Gold: The June gold contract is trading up at 1188.10. Gold is 13 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 down fractionally. 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 lower with the exception of the Nikkei exchange which traded fractionally higher. All of Europe is currently trading higher.

Possible Challenges To Traders Today

- Trade Balance is out at 8:30 AM EST. This is major.

- Final Services PMI is out at 9:45 EST. This is major.

- ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.

- IBD/TIPP Economic Optimism is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:15 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 9:15 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 9:15 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

Yesterday we said our bias was to the downside however the markets had other ideas as the Dow gained 46 points and the other indices gained as well. Today we aren’t dealing with a correlated market and our bias is neutral.

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 markets were correlated as such. However each day we also state that this could change and yesterday was no exception as the markets drove higher. There wasn’t really heavy economic news so that wasn’t a factor. In our opinion this was a case whereby the Smart Money looked at Asia, looked at Europe and decided to go long and prop up the markets. But think of it this way there was a time when a full fledged rally was considered 3 up days in a row and yesterday was Day Two....