The Fed Raises

Good Morning Traders,

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

US Dollar: Up at 98.805 the US Dollar is up 921 ticks and trading at 98.805.

Energies: January Crude is down at 36.54

Financials: The Mar 30 year bond is up 32 ticks and trading at 155.17.
Indices: The Mar S&P 500 emini ES contract is up 17 ticks and trading at 2068.00.

Gold: The Feb gold contract is trading down at 1067.50. Gold is 93 ticks lower than its close.

Initial Conclusion

This is a not a correlated market. The dollar is up+ and crude is down- 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 up and Crude is trading lower which is 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 higher. As of this writing Europe is trading higher.

Possible Challenges To Traders Today

- Philly Fed Manufacturing Index is out at 8:30 AM EST. This is major.

- Unemployment Claims is out at 8:30 AM EST. this is major.

- Current Account is out at 8:30 AM EST. This is major.

- CB Leading Index m/m is out at 10 AM EST. This is major.

- Natural Gas Storage is out at 10:30 AM EST. This is major

Currencies

Yesterday the Swiss Franc made it’s move at around 8:40 AM EST after the 8:30 news numbers came 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 8:40 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 8:40 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 Ninja Trader platform

Bias

Yesterday we said our bias was neutral as it was FOMC Day. The markets made several moves (up & down) but finally the Dow closed up by 224 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and will maintain a neutral.

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

Commentary

Well at 2 PM yesterday the great mystery was solved as the Fed decided to hike the FFR (Federal Funds Rates) by 25 basis points or .25 percent. This was the first time in nearly 10 years that they raised however based on past experience (believe me we’ve seen this movie before) the Fed doesn’t stop at one. I watched the Press Conference afterwards and it seemed to me as those someone had a gun to Janet Yellen’s head. All she kept on talking about was the Unemployment Rate and how great the labor market was doing. Yet she failed to mention that the long term unemployment is rising and that inflation is no where to be seen nor is wages growing yet the FOMC decided to raise rates. This will have an effect on consumer spending; perhaps not now as we’re well into the holiday spending season but in the time to come it will have an effect. I don’t think we’re going to see the housing market grow nor will Auto Sales be as robust as they were but this is the price you pay when you give in to pressure and allow the Smart Money to control the markets as they’ve been doing. American workers do not have the buying power that we did in the 1990′s as wages have been stagnant for years and it isn’t growing any time soon. Employers will not pay high wages as their attitude is “we’ve made that mistake before and we won’t do it again”. The cost of borrowing will go up and anyone with credit card debt will be in for a rude awakening as no one will put the brakes on them as to what is a reasonable rate of interest.