ADP Propels Markets

Good Morning Traders,

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

US Dollar: Down at 96.890 the US Dollar is down 411 ticks and trading at 96.890.

Energies: March Crude is up at 32.64.

Financials: The Mar 30 year bond is down 7 ticks and trading at 162.05.
Indices: The Mar S&P 500 emini ES contract is up 17 ticks and trading at 1912.75.

Gold: The Feb gold contract is trading up at 1146.60. Gold is 53 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is down- and crude is up+ which is 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 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.

Asia traded higher with the exception of the Japanese Nikkei which traded lower. As this writing all of Europe is trading mainly higher with the exception of the Milan exchanges which is fractionally lower.

Possible Challenges To Traders Today

- FOMC Member Rosengren Speaks at 2:15 AM EST. This is major.

- Challenger Job Cuts y/y are out at 7:30 AM EST. This is major.

- Unemployment Claims are out at 8:30 AM EST. This is major.

- Prelim Nonfarm Productivity q/q are out at 8:30 AM EST. This is major.

- Prelim Unit Labor Costs q/q are out at 8:30 AM EST. This is major.

- Factory Orders are out at 10 AM EST. This is major.

- Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.

Currencies

Yesterday the Swiss Franc made it’s move at around 10 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 10 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 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

Yesterday we gave the markets a neutral as it didn’t appear as though the markets had any sense of direction yesterday morning. The Dow gained 188 points,the Nasdaq dropped 13 and the S&P gained 10. All in all a mixed day. 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

Yesterday it didn’t appear to us that the markets had any sense of direction hence the neutral bias. Neutral also means the markets could go in any direction and yesterday they flip-flopped between positive and negative territory all session long. This was despite a positive reading from ADP which suggests that the US economy created 205,000 new jobs in January. Time will tell if this is the case as tomorrow is Non-Farm Payrolls. Thus far this year the markets are fraught with anxiety. There could be a number of reasons for this: the Fed, not-too-stellar earnings and general malaise. All of this could be true but our objective is to keep you on the right side of the market…

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.