Auto Sales Fail to Rev Up Markets

Good Morning Traders,

As of this writing 4:01 AM EST, here’s what we see:

US Dollar: Down at 85.895, the US Dollar is down 181 ticks and is trading at 85.895.
Energies: November Crude is down at 89.44.
Financials: The Dec 30 year bond is down ticks and trading at 137.16.
Indices: The Dec S&P 500 emini ES contract is down 3 ticks and trading at 1941.50.
Gold: The October gold contract is trading up at 1216.70 and is up 21 ticks from its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and oil is up+ which is not normal but 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 fractionally and the US dollar is trading down which is correlated. Gold is trading higher 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.

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

Possible Challenges To Traders Today

1. Unemployment Claims is out at 8:30 AM EST. This is major.

2. Factory Orders m/m are out at 10 AM EST. This is major.

3. Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market

Currencies

Yesterday the Swiss Franc made it’s move at around 9:35 AM EST after the 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 9:35 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 9:35 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 20 plus 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 we didn’t see enough follow thru on the indices. The markets dropped across the board with the Dow falling 238 and the other indices fell as well. Today we aren’t dealing with a correlated market and will maintain a neutral bias.

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

Commentary

Yesterday we said our bias was neutral as we didn’t see enough follow thru on the indices. A neutral bias means the markets could go in any direction. Well the markets opened and the news came out and it was all negative. Not one major report met or beat expectation. The only report that did was the ADP numbers at 8:15 AM EST but needs to be taken a grain of salt as they aren’t actual numbers but an estimate. The real numbers come out tomorrow with Non-Farm payrolls. In fact we said in our Market Bias video that yesterday would be a good day to sit out the market and avoid trading. Auto Sales came in at 16.4M versus 16.9M expected. We heard some talking heads on CNBC stating that the Fed will raise rates sooner as opposed to later; but with news like this I don’t think they’ll be doing it sooner. Another word on the ADP jobs numbers. ADP has been wrong more often than not and even if they are accurate the mainstream economy is always behind the curb when it comes to job creation. Currently they perceive that the economy is getting better and may continue to hire but the markets are a harbinger of the future.