NFP Doesn't Wow Markets

Good Morning Traders,

As of this writing 4:25 AM EST, here’s what we see:

US Dollar: Up at 98.660 the US Dollar is up 61 ticks and trading at 98.660.

Energies: February Crude is down at 32.69.

Financials: The Mar 30 year bond is down 20 ticks and trading at 155.24.
Indices: The Mar S&P 500 emini ES contract is up 37 ticks and trading at 1920.75.

Gold: The Feb gold contract is trading up at 1100.50. Gold is 26 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and crude 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 lower which is correlated. Gold is trading up which is not 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. As this writing all of Europe is trading higher.

Possible Challenges To Traders Today

- Labor Market Conditions Index m/m is out at 10 AM EST. This is not major.

- Lack of Major Economic News.

Currencies

On Friday the Swiss Franc made it’s move at 8:35 AM EST after Non Farm Payrolls came out. 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 8:35 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 high at around 8:35 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.

Please Note: You need to wait for the news to come out and judge market direction accordingly prior to making a trade.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

On Friday we gave the markets a neutral bias as it was Jobs Friday and we always maintain a neutral bias on that day. The Dow dropped 168 points and the other indices fell as well. Today we aren’t dealing with a correlated market and will maintain a neutral bias.

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

Commentary

Friday’s Non-Farm Payrolls report should serve as a living testament as to why we maintain a neutral bias on that day. The markets have never shown any sense of normalcy on either Jobs Friday or the FOMC Meeting. Initially the markets rose on the news that the US economy created 292,000 new jobs; however the Unemployment Rate remained at 5%. That should have served as a red flag to anyone. How can you create that many new jobs yet the unemployment rate remains at 5%? The reason we are told is because the employment population grew. Really? I might buy that in June due to college graduations but I’m not buying it in January. If that were truly the case then how does it go that the long term unemployment rate (U6) remains at 9.9% exactly where its been for both November and December?

The reason why the numbers rose is because in December we have the once a year phenomena called Holiday Spending whereby retailers scramble to hire anyone who can walk and talk for a job. What kind of job? Usually part-time with no benefits and no living wage. Many of these same jobs “created” in December will be gone in January due to seasonal factors and in fact that will be the major reason the analysts will tell us next month if the jobs numbers fall in February. When traders realized that the “stellar” job numbers didn’t increase wages and that in fact wages are stagnant as they’ve been for years now, the markets fell didn’t meet parity. The sad news about all of this is the Fed will probably site this as a reason for hiking rates in March. What no seems to get out of all of this is that job creation has always been behind the curb. It is not a leading indicator but a lagging one. The Fed should seriously consider this prior to another rate hike…