Eco news doesn't inspire

Good Morning Traders,

As of this writing 3:50 AM EST, here’s what we see:

US Dollar: Down at 92.985 the US Dollar is down 69 ticks and trading at 92.985.
Energies: June Crude is down at 45.60.
Financials: The June 30 year bond is down 1 tick and trading at 163.09.
Indices: The June S&P 500 emini ES contract is up 1 tick and trading at 2059.25.
Gold: The June gold contract is trading up at 1296.80. Gold is 63 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is down- and crude is down- which is not 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 lower 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 mixed with half the exchanges higher and the other half lower.

Possible Challenges To Traders Today

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

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

– Construction Spending m/m is out at 10 AM EST. This is major.

– ISM Manufacturing Prices is out at 10 AM EST. This is major.

– Loan Officer Survey.

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.

On Friday Gold made it’s move at around 8:30 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;30 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 high at around 8:30 AM EST and Gold hit a low. 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 Ninja Trader platform

Bias

On Friday we gave the markets a downside bias as Crude, the Bonds and Gold were all trading higher Friday morning. This did not bode well for an upside day hence our bias was to the downside. The Dow dropped 57 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

On Friday we correctly called for a downside day and all we did was to follow our rules of Market Correlation. None of the economic reports on Friday exceeded expectation and thus the markets reacted accordingly. Gratefully the Fed did not hike interest rates last Wednesday and we suspect that if they did the drop would have been far more extensive. Personal Spending down, Chicago PMI down, Consumer Sentiment down. When we have these kinds of results we can’t expect an upside day. Today we have Construction Spending and ISM Manufacturing PMI both of which are major and proven market movers.

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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.