Good Morning Traders,

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

US Dollar: Down at 98.700 the US Dollar is down 84 ticks and trading at .98.700.

Energies: January Crude is up at 37.97.

Financials: The Mar 30 year bond is up 6 ticks and trading at 155.15.
Indices: The Dec S&P 500 emini ES contract is down 57 ticks and trading at 2066.75.

Gold: The Fed gold contract is trading down at 1073.10. Gold is 21 ticks lower 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 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 higher which is correlated. Gold is trading down which is not 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. As of this writing Europe is trading mainly lower.

Possible Challenges To Traders Today

- NFIB Small Business Index is out at 6 AM EST. This is not major.

- JOLTS Job Openings is out at 10 AM EST. This is major.

- IBD/TIPP Economic Optimism is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:30 AM EST with no 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 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 elected to maintain our neutral bias as the USD and the Bonds were pointed higher but there was no follow thru for indices, hence a neutral bias. The Dow dropped 117 points and the other indices lost ground as well. For those of you who are new to us a neutral bias means the markets could go in any direction. 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

Last Friday after the NFP numbers came out we alerted the readers of this newsletter that an OPEC meeting was being held which would determine the price of crude going forward. Much to our surprise OPEC elected to raise the production minimum as opposed to lowering it as we assumed they would. No sooner did this happen when crude plunged below the $40 a barrel mark but (on Friday) regained the $40 threshold. Fast forward to yesterday and crude traded below $40 and never traded above it. At it’s low point January crude traded at 37.50 a barrel. One has to speculate as to what OPEC’s up to. It’s been a year already and they haven’t cut production but in the meanwhile crude is dropping and the number of oil rigs have dropped as well (at least in North America). Unemployment is at 5% but the oil fields have laid off workers. If this is OPEC’s way of getting rid of competition; they’re doing a good job of it and apparently they want more of the same. Don’t get me wrong there’s nothing bad about low crude prices but we have to wonder if OPEC has a hidden agenda.

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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