Patriotic Rally Continues

Good Morning Traders,

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

US Dollar: Down at 99.475 the US Dollar is down 225 ticks and trading at 99.475.
Energies: December Crude is up at 42.38.
Financials: The Dec 30 year bond is down 1 tick and trading at 153.26.
Indices: The Dec S&P 500 emini ES contract is down 17 ticks and trading at 2044.75.
Gold: The December gold contract is trading up at 1070.30. Gold is 17 ticks higher than its close.

Initial Conclusion

This is a not a correlated market. The dollar is down- and crude 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 down and Crude is trading up 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.

All of Asia traded lower with the exception of the Japanese Nikkei which traded higher. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- FOMC Member Lockhart Speaks at 8 AM EST – This is major.

- Building Permits are out at 8:30 AM EST. This is major.

- Housing Starts are out at 8:30 AM EST. This is major.

- Crude Oil Inventories are out at 10:30 AM EST. This could move the crude markets.

- FOMC Meeting Minutes are out at 2 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 10 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 10 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 10 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

Yesterday we said our bias was neutral as every instrument we track was trading up 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 gained 7 points and the Nasdaq gained 1 point with the S&P dropping by 3. 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

Yesterday seemed to be a reprise of Monday’s action only this time the Paris exchange didn’t lose ground at all; it gained 133 points. This is not the first time we’ve seen this as the same situation occurred after 9/11 with patriotic buying in full swing. It would appear as the Europeans are following a similar path. None of the news reported yesterday exceeded expectation and in fact in some cases this was good. As a case-in-point CPI came in at a tame 0.2 percent which is good as it means inflation is nowhere to be seen and the Fed will need to consider that next month when they meet. Today we also have the Fed Meeting Minutes at 2 PM EST, this is major and a proven market mover.

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Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.

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.

In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.

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