Yellen Speaks

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Down at 95.620 the US Dollar is down 316 ticks and trading at 95.620.

Energies: March Crude is down at 26.60.

Financials: The Mar 30 year bond is up 64 ticks and trading at 169.02.
Indices: The Mar S&P 500 emini ES contract is down 133 ticks and trading at 1813.50.

Gold: The Feb gold contract is trading up at 1219.40. Gold is 248 ticks higher than its close.

Initial Conclusion

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

All of Asia traded lower. As this writing all of Europe is trading lower.

Possible Challenges To Traders Today

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

- Fed Chair Yellen Testifies at 10 AM EST. This is major.

- Nat Gas Storage is out at 10:30 AM EST. This is major.

- 30-y Bond Auction starts at 1 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 10:30 AM EST at around the time that Crude Oil inventories were 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 10:30 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 high at around 10:30 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 an upside bias as the Bonds and Gold were both trading lower and usually this is indicative of an upside bias. The Dow dropped 99 points, the Nasdaq rose 15 and the S&P came in dead even. 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

At 10 AM EST yesterday morning Fed Chair Janet Yellen gave her semi-annual report to the Congressional Finance Committee on the state of the US economy. No sooner had she finished her opening comments when the committee clearly went on the attack. This was definitely not a friendly meeting and the cause of their concern? The fact that the Fed raised rates in December and from the beginning of 2016 to the present the stock market has dropped. We can certainly understand their concern because as traders we want to see a normalized market and unfortunately thus far in 2016 we haven’t seen that. Yellen did not admit to making an error in December and we knew they’d never confess to such. For the first that I can recall every question asked was an attack on Yellen and the Fed. Today marks Day Two of her testimony, so time will tell know it works out.