GDP not cutting it

Good Morning Traders,

As of this writing 4:10 AM EST, here’s what we see:

US Dollar: Down at 93.440 the US Dollar is down 287 ticks and trading at 93.440.
Energies: June Crude is up at 46.26.
Financials: The June 30 year bond is up 2 ticks and trading at 162.26.
Indices: The June S&P 500 emini ES contract is down 13 ticks and trading at 2069.25.
Gold: The June gold contract is trading up at 1279.00. Gold is 126 ticks higher than its close.

Initial Conclusion

This is 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 higher which is 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

– Core PCE Price Index m/m is out at 8:30 AM EST. This is major.

– Employment Cost Index q/q is out at 8:30 AM EST. This is major.

– Personal Spending m/m is out at 8:30 AM EST. This is major.

– Personal Income m/m is out at 8:30 AM EST. This is major.

– Chicago PMI is out at 9:45 AM EST. This is major.

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

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

– Treasury Currency Report. This is not major.

Gold

We’ve elected to switch gears a bit and show correlation between Gold and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it’s liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday Gold made it’s move at around 8:45 AM EST after the 8:30 news items were reported. The YM hit a high at around that time and Gold hit a low. If you look at the charts below the YM gave a signal at around 8;45 AM EST, while Gold 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 YM hit a low at around 8:45 AM EST and Gold hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a 15 minute chart to display better. This represented a long opportunity on Gold, as a trader you could have netted about 50 plus ticks per contract on this trade. Each tick is worth $10. We added a Donchian Channel to the charts to show the signals more clearly.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a downside bias as both the Bonds and Gold traded higher yesterday morning and this does not bode well for an upside day. The Dow dropped 211 points and the other indices lost ground as well. 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 we correctly called for a downside day just by following our rules of Market Correlation. The Dow dropped 211 points and the other indices dropped as well. Advance GDP came out at 8:30 AM EST yesterday that did not meet expectation coming in at 0.5% versus 0.7% expected. The markets dropped on this news and never ventured into positive territory. The Fed was correct in not hiking rates on Wednesday as that probably would have resulted in a further down slide. Today we have a virtual tsunami of economic reports so we’ll have to monitor accordingly.

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