A Seesaw Session

Good Morning Traders,

As of this writing 4:45 AM EST, here’s what we see:

US Dollar: Down at 96.910, the US Dollar is down 388 ticks and is trading at 96.910. Energies: April Crude is down at 47.25

Financials: The June 30 year bond is up 7 ticks and trading at 164.08. Indices: The June S&P 500 emini ES contract is up 16 ticks and trading at 2098.75.

Gold: The April gold contract is trading up at 1190.80 and is up 31 ticks from its close.

Initial Conclusion

This is not a correlated market. The dollar is down- and oil is down- which is not normal but the 30 year bond is trading up. 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 down 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.

Asia traded mainly higher with the exception of the Japanese Nikkei and Hang Seng exchanges which traded lower. As of this writing all of Europe is trading to the upside.

Possible Challenges To Traders Today

CPI m/m is out at 8:30 AM EST. This is major.

Core CPI m/m is out at 8:30 AM EST. This is major..

HPI m/m is out at 9 AM EST. This is major.

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

New Home Sales is out at 10 AM EST. This is major.

Richmond Manufacturing Index is out at 10 AM EST.

Currencies

On Friday the Swiss Franc made it’s move around 9:45 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 9:45 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 low at around 9:45 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 20 ticks 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 $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 to the downside as the USD and Gold were trading lower. The Dow dropped 12 points and the other indices lost ground as well. Today we aren’t with a correlated however our bias is to the upside. Why? The USD and Crude are both trading lower.

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

Commentary

So yesterday we called for a downside day and the markets didn’t disappoint as all the indices closed lower. Not much mind you but lower nonetheless. Once again we need to refer to our rules of Market Correlation as we mentioned this would happen hours before the markets opened. We call this a seesaw session because most of the day was spent in positive territory with the last half hour falling. Today we have much more in the way of economic news and just about all of it is major.