News Tsunami Doesn't Help

Good Morning Traders,

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

US Dollar: Down at 95.320, the US Dollar is down 67 ticks and trading at 95.320.

Energies: August Crude is down at 59.42.

Financials: The Sept 30 year bond is down 7 ticks and trading at 149.11.
Indices: The Sept S&P 500 emini ES contract is down 1 tick and trading at 2093.75.

Gold: The August gold contract is trading up at 1174.90 Gold is 31 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is down- and oil is down- which is not normal and the 30 year bond is trading lower. 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 up which is correlated with the US dollar trading down. 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.

All of Asia traded lower. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- Revised UoM Consumer Sentiment is out at 10 AM EST. This is not major.

- Revised UoM Inflation Expectations are out at 10 AM EST. This is not major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:30 AM EST after the 8:30 news items were reported. 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 8:30 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 8:30 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 Ninja Trader platform

Bias

Yesterday we said our bias was to the upside however the markets had other ideas as the Dow lost 76 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is neutral. A neutral bias means the markets could go in any direction.

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

Commentary

Yesterday morning the futures had signaled an upside bias and even though most of the session was spent in positive territory; after 2 PM the Dow sank below parity and stayed there. You might asking “well what happened”? Yesterday we had 8 economic reports, most of which were major. Any one of those reports had the ability to change market direction. Unfortunately most of the reports didn’t meet expectation. Case-in-point: Unemployment Claims came in at 271,000 versus 268,000 from the prior week. An increase in unemployment claims means we’re going in the wrong direction. Personal Spending rose but Personal Income dropped. Again this means we’re going in the wrong direction.