Happy Labor Day

Good Morning Traders,

As of this writing 5:35 AM EST, here’s what we see:

US Dollar: Down at 82.500, the US Dollar is down 16 ticks and is trading at 82.500.
Energies: October Crude is up at 95.09.
Financials: The Sept 30 year bond is down 8 ticks and trading at 141.15.
Indices: The Sept S&P 500 emini ES contract is up 14 ticks and trading at 2000.25.
Gold: The October gold contract is trading down at 1285.20 and is down 43 ticks from its close.

Initial Conclusion

This is a nearly correlated market and it’s correlated to the upside. The dollar is down- and oil 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 the US dollar is trading down which is correlated. Gold is trading lower 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 mixed with half the exchanges trading lower and the other half higher. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

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

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

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

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

5. Revised UoM Consumer Sentiment is out at 9:55 AM EST. This is not major.

6. Revised UoM Inflation Expectations is out at 9:55 AM EST. This is not major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:45 AM EST after most of the major economic news was reported. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at around 9:45 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 high at 9:45 AM EST and the Swiss Franc hit a low. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 12-15 ticks on this trade. 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 NinjaTrader platform

Bias

Yesterday we said our bias was neutral as the bonds were higher but the indices weren’t cooperating. A neutral bias means the markets could go in any direction. The Dow dropped 42 points, the Nasdaq dropped by 12 and the S&P lost the 2,000 crown to drop 3 points at 1997. Today we are dealing with a nearly correlated market with the missing ingredient being gold. As such our bias is to the upside.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Yesterday we said our bias was neutral as the indices weren’t cooperating with what we saw on the other instruments. No sooner had we published yesterday’s edition when the news broke that Russia has 1,000 troops in Ukraine territory and that set the tone for the entire session. The Dow didn’t venture into positive territory all session despite the fact that we had good economic news. The Ukrainian President has pretty much declared this to be an invasion and has demanded an emergency meeting with NATO that is scheduled for tomorrow. Russia, of course has denied all of this but the problem is NATO has satellite photos showing Russian troops in Ukraine territory. Tomorrow is the day before a major holiday in the US so we expect low volume and the trades to dry up by 12 noon as most traders will want to exit early and start the 3 day weekend. We do have economic news in the AM so something to be mindful of if trading today.