Tsunami, part deux

Good Morning Traders,

As of this writing 4:40 AM EST, here’s what we see:

US Dollar: Down at 95.300, the US Dollar is down 21 ticks and is trading at 95.300.
Energies: April Crude is down at 49.12.
Financials: The Mar 30 year bond is down 6 ticks and trading at 146.27.
Indices: The Mar S&P 500 emini ES contract is up 12 ticks and trading at 2105.75.

Gold: The April gold contract is trading up at 1215.10 and is up 20 ticks from its close. The front month for Gold is now April.

Initial Conclusion

This is not a correlated market. The dollar is down- and oil is down- which is not 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 down which is correlated. Gold is trading higher 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.

Asia traded mainly higher with all the exchanges in positive territory. As of this writing all of Europe is trading to the upside with the exception of the Paris exchanges which is slightly lower.

Possible Challenges To Traders Today

Core PCE Price Index m/m is out at 8:30 AM EST. This is major.

Personal Spending m/m is out at 8:30 AM EST. This is major.

Personal Income m/m is out at 8:30 AM EST. This is major.

Final Manufacturing PMI is out at 9:45 AM EST. This is not major.

ISM Manufacturing PMI is out at 10 AM EST. This is major.

Construction Spending m/m is out at 10 AM EST. This is major.

ISM Manufacturing Prices is out at 10 AM EST. This is not major.

Currencies

On Friday the Swiss Franc made it’s move at around 8:30 AM EST at around the same time that the economic news was reported. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 8:30 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 low at 8:30 AM EST and the Swiss Franc hit a high. 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 shorting 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 $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

On Friday we said our bias was to the upside as both the USD and Bonds were lower and we took that as a positive sign for the markets (which it usually is). The markets had other ideas as the Dow dropped 81 points and the other indices fell 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

On Friday we said our bias was to the upside but the markets had other ideas, so what happened? The economic reports given didn’t help much as none of them really met their expectation. Preliminary GDP came in at 2.2% which beat 2.1% expected but didn’t exceed 2.6% reported previously. Chicago PMI came in at 45.8% versus 58.4% expected. But as we always say in our Market Bias videos, this could change as the markets themselves are quite volatile and much of what happens is based on economic reports.