The Day After

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Up at 99.200 the US Dollar is up 124 ticks and trading at 99.200.
Energies: December Crude is up at 44.00.
Financials: The Dec 30 year bond is up 4 ticks and trading at 152.07.
Indices: The Dec S&P 500 emini ES contract is down 4 ticks and trading at 2072.00.
Gold: The December gold contract is trading up at 1091.70. Gold is 36 ticks higher than its close.

Initial Conclusion

This is a not a correlated market. The dollar is up+ and crude is up+ which is not normal and 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 up which is correlated. Gold is trading up which is not correlated with the US dollar trading up. 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 Japanese Nikkei which traded higher. As of this writing Europe is trading mixed with half the exchanges higher and the other half lower.

Possible Challenges To Traders Today

- NFIB Small Business Index is out at 6 AM EST. This is major.

- Import Prices m/m is out at 8:30 AM EST. This is major.

- Wholesale Inventories m/m are out at 10 AM EST. This is major.

- 10-y Bond Auction starts at 1 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:30 AM EST with no real economic news in sight. 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 9:30 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 around 9:30 AM EST and the Swiss Franc hit a low. 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 long opportunity on the Swiss Franc, as a trader you could have netted about 20 plus 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 neutral which means the markets could go in any direction. The Dow dropped 180 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

Another day after Jobs Friday and already the fear mongering erupts on the markets. Yesterday we gave a neutral bias because the USD and Bonds were both trading lower and this should indicate a positive stance for the indices. That didn’t happen and those of you who subscribe to us heard that in our daily Market Bias video. The market opened lower and stayed in negative territory all session long. So what was the fear all about? Some folks believe the Fed will raise in December even though we’ve done our best to counter that. Unfortunately perception does become reality in the marketplace. Do we still think the Fed won’t raise in December? Yes, but of course only time will tell if this is correct.

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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.

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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.

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