Markets finally got a break!

Good Morning Traders,

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

US Dollar: Up at 99.285 the US Dollar is up 157 ticks and trading at 99.285.
Energies: March Crude is up at 30.92.
Financials: The Mar 30 year bond is down 22 ticks and trading at 158.28.
Indices: The Mar S&P 500 emini ES contract is up 102 ticks and trading at 1886.50.
Gold: The Feb gold contract is trading down at 1096.30. Gold is 19 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 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 higher which is not 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 higher. As this writing all of Europe is trading higher.

Possible Challenges To Traders Today

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

- Existing Home Sales is out at 10 AM EST. This is major.

- CB Leading Index m/m is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9 AM EST after the major economic news was reported. 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 9 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 9 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.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a neutral bias as the futures didn’t give any indication of direction hence a neutral bias. The Dow gained 116 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is to the upside.

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

Commentary

Well it finally happened. There’s an old saying that whatever goes up must come down and vice-versa. This was the case yesterday as the economic news reported wasn’t too stellar. Unemployment Claims went up to 293,000 versus 279,000 expected and Philly Fed Manufacturing although not as bad as the previous month was still negative nonetheless. So it would appear as though the markets was due for a break and finally got one yesterday. The question is what will happen going forward? Is this a Dead Cat Bounce or the beginning of a trend? Only time will tell…..

Share: Analysis feed

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.