Good Morning Traders,

As of this writing 5:20 AM EST, here’s what we see:

US Dollar: Up at 98.215 the US Dollar is up 581 ticks and trading at .98.215.
Energies:
January Crude is up at 41.49.
Financials:
The Dec 30 year bond is up 22 ticks and trading at 154.06.
Indices:
The Dec S&P 500 emini ES contract is up 30 ticks and trading at 2058.75.
Gold:
The December gold contract is trading down at 1060.60. Gold is 6 ticks lower 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 higher which is not correlated. Gold is trading down which is 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.

All of Asia traded lower.. As of this writing Europe is trading mainly lower.

Possible Challenges To Traders Today

- Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.

- Non-Farm Employment Change is out at 8:30 AM EST. This is major.

- Unemployment Rate is out at 8:30 AM EST. This is major.

- Trade Balance is out at 8:30 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:30 AM EST prior to the 8:30 News coming out. 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 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 high at around 8:30 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 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

Pre-Market Global Review

Pre-Market Global Review

Bias

Yesterday we gave the markets an upside bias as Crude, Gold and the Bonds were all pointed lower and usually that’s a good indication for an upside day. The markets however had other ideas as the Dow dropped 252 points and the other indices lost ground as well. Today given that it’s NFP Friday we’ll give a neutral bias.

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

Commentary

Yesterday Janet Yellen gave her testimony to Congress and apparently all is rosy in USA Land. It sounds to me as though the Fed has made up their minds: they will raise rates in either December or January. This is sad because we ‘re not convinced that all is rosy in the economy. US GDP is still way behind prior recoveries and inflation isn’t anywhere near the 2% target that the Fed themselves have placed on it. On Congressman even asked Yellen if “raising rates would stimulate borrowing”? This isn’t as ridiculous as it sounds. In the 1970′s the same ploy was used to sell inflation with the idea being “hey you better buy now because we don’t know what the price will be tomorrow.” If you ask me it seems as though an interest rate hike is ready baked in the market, we just hope that when it occurs it happens for the right reason and perhaps will provide a sense of normalcy in the markets; which we haven’t seen in quite some time.

For those of you who are new to us we gave the markets a neutral bias today. A neutral bias means the markets could go in any direction. There are two days in the month when we definitely give a neutral bias. One is Jobs Friday (today) and the other is FOMC Day. Why? Because the markets historically have never shown any sense of normalcy on those days.

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.

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.

There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.

In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.

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