Fedspeak Day

Good Morning Traders,

As of this writing 4:50 AM EST, here’s what we see:

US Dollar: Down at 94.665 the US Dollar is down 110 ticks and trading at 94.665.

Energies: November Crude is up at 47.66.

Financials: The Dec 30 year bond is up 13 ticks and trading at 158.07.
Indices: The Dec S&P 500 emini ES contract is down 42 ticks and trading at 2000.50.

Gold: The December gold contract is trading down at 1156.60. Gold is 79 ticks lower than its close.

Initial Conclusion

This is a not a correlated market. The dollar is down- and crude is up+ which is normal but the 30 year bond is trading higher. 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 up which is 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.

Asia traded lower with the exception of the Indian Shanghai exchange which traded fractionally higher. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- NFIB Small Business Index is out at 6 AM EST. This is major.

- Federal Budget Balance is out at 2 PM EST. This is major.

- Lack of economic news.

Currencies

Yesterday the Swiss Franc made it’s move at around 10 AM EST with no 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 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 Ninja Trader platform

Bias

Yesterday we said our bias was neutral as the futures gave us no sense of direction whatsoever. Hence the neutral bias which means the markets could go in any direction. The Dow closed up 48 points and the other indices traded up fractionally. 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

Yesterday being a bank holiday in the United States (Columbus Day) we always approach this kind of day with a degree of trepidation. The futures gave no sense of direction yesterday morning, therefore the neutral bias. For those of you who are new to us a neutral means the markets could go in any direction and it did. First up, then down, then up again. It didn’t help that it was a bank holiday in the United States with low volume and the Chinese Finance Minister claimed the Fed should hold off on raising rates while the IMF said hurry up and raise, so go figure. One thing’s for certain, the Fed doesn’t want to be accused of trashing the economic by raising rates prematurely. They want justification and a reason to raise. We think that if it happens at all it will be December or perhaps January when they have a full year of data to work with. But this assumes that they’ll raise, they may not and only time will tell.