NAHB not Taboo for Markets

Good Morning Traders,

As of this writing 5:05 AM EST, here’s what we see:

US Dollar: Up at 94.980, the US Dollar is up 711 ticks and trading at 94.980.
Energies: July Crude is down at 59.71.

Financials: The June 30 year bond is up 19 ticks and trading at 155.02.
Indices: The June S&P 500 emini ES contract is up 23 ticks and trading at 2131.75.

Gold: The June gold contract is trading down at 1220.00. Gold is 76 ticks lower than 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 up and Crude is trading down which is 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 to the downside with the exception of the Singapore and Sensex exchanges which traded lower. As of this writing Europe is trading higher.

Possible Challenges To Traders Today

- Building Permits are out at 8:30 AM EST. This is major.

- Housing Starts are out at 8:30 AM EST. This is major..

Currencies

Yesterday the Swiss Franc made it’s move at around 8:20 AM EST with no economic news in sight. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at around 8:20 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 high at around 8:20 AM EST and the Swiss Franc hit a low. 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 long 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 but the markets had other ideas. The Dow gained 26 and the other indices gained as well. 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 futures were correlated in that direction however the markets had other ideas and gained some ground. Yesterday morning the USD, crude and the bonds were all trading higher and that bode well for an upside day. So you might ask “then why did the markets advance”? Remember what we’ve been saying for the past week or so, the Fed is going to be very reluctant to raise rates if the economic news is bad. They do not want to be the ones accused of slowing down the economy at a time when the rest of the civilized world is keeping rates at an all time low. There are some analysts that are now saying 2016 for a rate hike and if the news continues to be not too stellar that may very well be the case. Be prepared for a reprise of 2013 this summer.