China "shanghai's" Markets

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Up at 96.865 the US Dollar is up 260 ticks and trading at 96.865.

Energies: September Crude is down at 46.73.

Financials: The Sept 30 year bond is down 13 ticks and trading at 154.25.
Indices: The Sept S&P 500 emini ES contract is up 31 ticks and trading at 2072.25.

Gold: The August gold contract is trading down at 1095.00 Gold is 14 ticks lower than its close.

Initial Conclusion

This is a nearly correlated market and it’s correlated to the upside. The dollar is up+ and oil 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 down 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 lower with the exception of the Hang Seng exchange which traded higher. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

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

- Flash Services PMI is out at 9:45 AM EST. This is not major.

- CB Consumer Confidence 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 around 9:35 AM EST after 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 9:35 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 around 9:35 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 about 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 Ninja Trader platform

Bias

Yesterday we said our bias was to the downside as the Bonds and Gold were trading much higher yesterday morning. Seeing the bonds trading higher doesn’t bode well for an upside day. The Dow dropped 128 points and the other indices lost ground as well. Today we are dealing with a nearly correlated market and it’s correlated to the upside hence our bias is to the upside.

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

Commentary

Yesterday we said our bias was to the downside as the Bonds and Gold were trading much higher, the Asian markets dropped as did Europe and the futures were pointing to a lower open. Additionally the markets were spooked by the Chinese exchanges which dropped dramatically Sunday evening. This had a worldwide effect on global markets as well. The issue seems to be that traders in China are concerned that their government may lose interest in the markets and allow them to float on their own accord without any intervention by the government. They should come to the United States as we have a government that will rarely intervene even when they should. That last time that happened was 2008 during the financial crisis. The best we can hope for is that the Fed will keep a cool head and not go crazy raising the FFR (Federal Funds Rate). Ironically the FOMC meets today and tomorrow so we hope cooler heads will prevail.