Santa Came to Town

Good Morning Traders,

As of this writing 5:05 AM EST, here’s what we see:

US Dollar: Down at 98.300 the US Dollar is down 69 ticks and trading at 98.300.
Energies: February Crude is up at 36.04
Financials: The Mar 30 year bond is up 11 ticks and trading at 156.13.
Indices: The Mar S&P 500 emini ES contract is down 20 ticks and trading at 2010.00.
Gold: The Feb gold contract is trading down at 1078.40. Gold is 22 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 but 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.

Asia traded mainly higher with the exception of the Nikkei and Sensex exchanges which traded lower. As of this writing Europe is trading mainly lower with the exception of the Spanish IBEX and London exchanges which are trading higher.

Possible Challenges To Traders Today

- Final GDP q/q is out at 8:30 AM EST. This is major..

- Final GDP Price Index q/q is out at 8:30 AM EST. This is major.

- HPI m/m is out at 9 AM EST. This is major.

- Existing Home Sales is out at 10 AM EST. This is major.

- Richmond Manufacturing Index is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:50 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 9:50 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 9:50 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

Bias

Yesterday we said our bias was to the upside as crude and bonds were pointed lower and usually this bodes well for an upside day. The Dow gained 123 points and the other indices gained ground as well. 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

Well it looks as if Santa finally came to town as the markets were finally up after 2 days of 600 plus point losses. This was with no major economic news to contend with. Unfortunately this came a tad bit late this year as usually a Santa Claus rally starts immediately after Thanksgiving and continues till Christmas. This year we’ll have to take what we can get. We do have more economic news to drive the markets so time will tell….

Share: Analysis feed

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.