News Tsunami Doesn't Help Markets

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Up at 99.150 the US Dollar is up130 ticks and trading at 99.150.
Energies: February Crude is up at 30.66.
Financials: The Mar 30 year bond is down 13 ticks and trading at 158.23.
Indices: The Mar S&P 500 emini ES contract is up 94 ticks and trading at 1898.50.
Gold: The Feb gold contract is trading down at 1090.50. Gold is 2 ticks lower than its close.

Initial Conclusion

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

Possible Challenges To Traders Today

- NAHB Housing Market Index is out at 10 AM EST. This is major.

- TIC Long-Term Purchases is out at 4 PM EST. This is not major.

Currencies

On Friday the Swiss Franc made it’s move at around 9:30 AM EST. 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 9:30 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 around 9:30 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 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

Bias

Last Friday we gave the markets a neutral bias as the futures didn’t seem to have any sense of direction. The Dow dropped 391 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and will maintain our neutral bias.

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

Commentary

Last Friday the markets continued their downward trend as the Dow dropped 391 points and the other indices didn’t fare too well either. The big question that comes to mind is what’s driving this? The markets just completed the first 10 days of this calendar year with the worst ever start in history. So what’s happening? For one China. China is now in recession territory, the Fed seems poised and adamant about raising rates even though the economic news doesn’t warrant it and it’s an election year. Retail Sales and Core Retail Sales dropped, the Empire State Manufacturing Index dropped dramatically and theoretically should be enough for the Fed to pause but no one buys this as they’ve already stated 4 rate hikes in 2016. There appears to be a tremendous amount of uncertainty and the oxymoron is the markets hate uncertainty, even though it is the most uncertain environment on planet Earth. This lends itself to a very volatile situation but as traders know volatility leads to opportunity.