Good Morning Traders,

As of this writing 4:45 AM EST, here’s what we see:

US Dollar: Down at 98.305 the US Dollar is down 440 ticks and trading at 98.305.

Energies: February Crude is up at 37.26.

Financials: The Mar 30 year bond is up 21 ticks and trading at 154.13.
Indices: The Mar S&P 500 emini ES contract is down 109 ticks and trading at 2008.25.

Gold: The Feb gold contract is trading up at 1071.90. Gold is 117 ticks higher than its close.

Initial Conclusion

This is 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 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 lower. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- Final Manufacturing PMI is out at 9:45 AM EST. This is 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 major.

Currencies

Last Thursday the Swiss Franc made it’s move at around 10:15 AM EST after all 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 10:15 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 low at around 10:15 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 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

Last Thursday we gave the markets a neutral bias as the indices didn’t appear to have any sense of direction. For those of you who are new to us, a neutral bias means the markets could go in any direction. The Dow dropped 179 points and the other indices dropped 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 another year’s gone by and it’ll probably take a month for me to start writing 2016 without making a mistake and writing 2015. The bad news is the indices did not beat 2014 thresholds and in fact lost ground. The Dow dropped 2.2% in 2015 versus 2014 and the other indices followed suit. So the question is what lies ahead for 2016? The good news is it’s an election year and ordinarily that bodes well for the markets although we must also remember that 2008 was an election year as well. What should be intuitively clear to everyone is that the idea of buy and hold should be dead and buried. As traders we need to take each day as it comes and judge market reaction and direction accordingly. That is what we’ve been doing for a number of years now and will continue to do so in the future. We called for a downside bias today because it is the first trading day of the year and thus far the overseas markets are selling off precipitately. Could this change? Of course.

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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