Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Down at 95.785 the US Dollar is down 182 ticks and trading at 95.785.
Energies: October Crude is up at 45.83.
Financials: The Dec 30 year bond is down 1 tick and trading at 158.25.
Indices: The Dec S&P 500 emini ES contract is up 16 ticks and trading at 1947.00.
Gold: The October gold contract is trading down at 1135.70. Gold is 9 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and crude is up+ which is 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 up and Crude is trading up which is not correlated. Gold is trading down which is not 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 higher. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Final Services PMI is out at 9:45 AM EST. This is not major.
- ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
- Labor Market Conditions Index m/m is out at 10 AM EST. This is not major.
Currencies
On Friday the Swiss Franc made it’s move shortly after 10 AM EST after all the news 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.
USD to Swiss Franc
How to Trade the Swiss Franc in a Volatile Market
As an add-on to the above video, we created a new one I trust you’ll find interesting and thought provoking.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
On Friday we said our bias was neutral as it was Jobs Friday and traditionally we always maintain a neutral bias on that day. Today we aren’t dealing with a correlated market and our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
On Friday we claimed a neutral bias. For those of you who are new to us we always maintain a neutral bias on Jobs Friday and FOMC Day as the markets have never shown any sense of normalcy on those days. A neutral bias means the markets could go in any direction on that day. Well the news came out at 8:30 AM EST and needless to say didn’t meet expectation. The unemployment rate held steady but the number of new jobs created fell by almost 60,000. Initially the markets didn’t treat this news too kindly as teh Dow fell by nearly 250 points. However later in the day when it was realized that the Fed probably won’t be hiking rates any time soon; the markets rebounded with the Dow closing up 200 points.
The above chart represents the DJIA for Friday, October 2nd. The Unemployment Rate held steady at 5.1% but the measure of the long term unemployed remained at 10% or nearly double the official rate. No sooner did this news come out when the pundits and analysts all claimed that the Fed won’t be hiking in October but may do it later in the year. Our train of thought says the Fed will take a whole year into consideration prior to hiking. This means January, 2016 at the earliest. Could this change? Of course, anything can happen in a volatile market.
Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.
There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.
In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.
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