The 13th Instills Fear in the Markets

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Up at 99.235 the US Dollar is up 138 ticks and trading at 99.235.
Energies: December Crude is up at 41.12.
Financials: The Dec 30 year bond is up 10 ticks and trading at 153.22.
Indices: The Dec S&P 500 emini ES contract is up 18 ticks and trading at 2023.00.
Gold: The December gold contract is trading up at 1091.20. Gold is 103 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 up and Crude is trading up which is not 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 lower with the exception of the Shanghai and Sensex exchanges which traded higher. As of this writing all of Europe is trading mainly higher.

Possible Challenges To Traders Today

- Empire State Manufacturing Index is out at 8:30 AM EST – This is major.

- Lack of Major Economic News.

Currencies

On Friday the Swiss Franc made it’s move at around 8:30 AM EST after the economic news was reported. 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 8:30 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 low at around 8:30 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 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 the $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

On Friday we said our bias was neutral as every instrument we track was trading up Friday morning and whenever you have a situation where everything is either trading up or down, there is no correlation. No correlation=no direction, hence the neutral bias. The Dow dropped by 203 points and the other indices lost ground 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

On Friday we had about nine economic reports, most of which were major and yet only University of Michigan Consumer Sentiment exceeded expectation. It came in at 93.1 versus 91.3 expected. This unto itself wasn’t enough to turn the tide and make an upside day. The markets opened lower and remained in negative territory for the entire session. Today we have very little in terms of economic news. At 8:30 AM we have the Empire State Manufacturing Index which is major and a proven market mover, so perhaps we’ll see a rebound today but as always only time will tell….