Good Morning Traders,

As of this writing 4:15 AM EST, here’s what we see:

US Dollar: Down at 97.920 the US Dollar is down 30 ticks and trading at 97.920.
Energies:
February Crude is up at 36.91.
Financials:
The Mar 30 year bond is down 11 ticks and trading at 155.09.
Indices:
The Mar S&P 500 emini ES contract is up 36 ticks and trading at 2057.25.
Gold:
The Feb gold contract is trading up at 1071.90. Gold is 36 ticks higher than its close.

Initial Conclusion

This is a nearly correlated market. The dollar is down- and crude is up+ which is normal and 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 higher which is not correlated. Gold is trading up which is 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 higher. As of this writing Europe is trading mainly higher.

Possible Challenges To Traders Today

- Goods Trade Balance is out at 8:30 AM EST. This is not major.

- S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.

- CB Consumer Confidence is out at 10 AM EST. This is major

Currencies

Yesterday the Swiss Franc made it’s move at around 10:45 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 10:45 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 10:45 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 about 20 plus ticks per contract 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 a neutral bias as the USD and Crude were trading lower but there was no follow thru on the indices, hence a neutral bias which the markets could go in any direction. The Dow dropped 24 points and the other indices dropped as well. Today we’re dealing with a nearly correlated market that is correlated to the upside; therefore our bias is to the upside.

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

Commentary

In a week that was fraught with optimism the markets didn’t do much yesterday. All indices dropped although not by much. Holiday trading is always tricky as many traders are looking for a continuation of the Santa Claus Rally. Whether that continues or not is yet to be seen. This was the first trading day after a long holiday weekend so I guess we shouldn’t expect much given that we had no economic news to drive the markets yesterday. That will change today as we have Consumer Confidence and the Home Pricing Index. But as we say each day in this newsletter, this too could change…

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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