Auto Sales Fail to Rev Up Markets

Good Morning Traders,

As of this writing 4:35 AM EST, here’s what we see:

US Dollar: Down at 98.870 the US Dollar is down 23 ticks and trading at 98.870.

Energies: March Crude is up at 30.40.

Financials: The Mar 30 year bond is down 6 ticks and trading at 162.27.
Indices: The Mar S&P 500 emini ES contract is up 30 ticks and trading at 1905.00.

Gold: The Feb gold contract is trading down at 1127.00. Gold is 2 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 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 up and Crude is trading higher 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.

All of Asia traded traded lower with many exchanges trading into triple digit negative territory. As this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.

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

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

- Crude Oil Inventories are out at 10:30 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:50 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 9:50 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 9:50 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 about 20 plus ticks per contract 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 the $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a downside bias as both the USD and Bonds were trading higher and this generally doesn’t bode well for an upside day. The Dow dropped 295 points and the other indices lost ground 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

This is the 2nd month in a row that we’ve witnessed Auto Sales that didn’t drive the markets higher. We said back in December when the Fed hiked rates that this would come to roost and it has. Worse than this the Fed is still sticking to their guns on potential rate hikes and the only thing that’s doing is instilling fear in the markets. Each time rates are raised it causes the ultimate consumer to pause and think twice about that major purchase that they might be contemplating. It could be a new washer/dryer or (yikes!!) a new car; it will still give them cause to pause. Other nations are going to negative rates and this Fed wants to raise! Are they trying to combat inflation that doesn’t exist or are they looking to toss a monkey wrench into the economy? Either way we wish they would back off….