Where's Santa??

Good Morning Traders,

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

US Dollar: Up at 98.770 the US Dollar is up 39 ticks and trading at 98.770.

Energies: February Crude is down at 35.81

Financials: The Mar 30 year bond is down 8 ticks and trading at 156.04.
Indices: The Mar S&P 500 emini ES contract is up 72 ticks and trading at 2010.00.

Gold: The Feb gold contract is trading up at 1071.40. Gold is 64 ticks higher than its close.

Initial Conclusion

This is a not a correlated market. The dollar is up+ and crude is down- which is normal but 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 up and Crude is trading lower which is 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 mixed with half the exchanges higher and the other half lower. As of this writing Europe is trading mainly higher with the exception of the Spanish IBEX exchange which traded lower.

Possible Challenges To Traders Today

- No major economic news to speak of.

- Lack of economic news.

Currencies

On Friday the Swiss Franc made it’s move at around 9:15 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 9:15 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 10 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

Swiss Franc – March, 2016 – 12/18/15

USD – March, 2016 – 12/18/15

Bias

On Friday we said our bias was to the downside and the markets didn’t disappoint. The Dow dropped 367 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.

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

Commentary

Well FOMC is clearly in the books and another week has gone by. BTW – The Dow dropped about 600 plus points in the last two trading days. Does that sound like a market that’s happy about a rate increase? So you have to ask yourself who had the most to gain by a rate increase and why? For months the pundits, analysts and otherwise talking heads have been clamoring for a rate increase stating that without one the Fed wouldn’t be able to do anything if the economy really turned sour. Then how does it go that the ECB knows how to weather this storm and the Fed doesn’t? The ECB is using negative interest rates to a great extent but no one here wants to try it. So the Fed raises with the intent of lowering if need be. What happens to their credibility? Gone. The Smart Money has been after them for quite sometime to hike rates. Why? So they can placate their high net worth constituents who want a better rate of return on fixed instruments. After all in that way they don’t have to work as hard for the capital and in their mind that is efficiency. In the meantime the market will suffer and if you’re wondering where Santa is, he’s not near Wall Street these days. Could this change? Of course and as we often say “anything can happen in a volatile market”