Post-Presidents Day Pop

Good Morning Traders,

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

US Dollar: Up at 96.880 the US Dollar is up 5 ticks and trading at 96.880.

Energies: April Crude is up at 31.28.

Financials: The Mar 30 year bond is up 5 ticks and trading at 165.28.
Indices: The Mar S&P 500 emini ES contract is up 22 ticks and trading at 1894.25.

Gold: The Feb gold contract is trading down at 1203.00. Gold is 52 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.

Asia traded mainly lower with the exception of the Indian Sensex and Shanghai exchanges which traded lower. As this writing all of Europe is trading higher.

Possible Challenges To Traders Today

- Building Permits are out at 8:30 AM EST. This is major.

- Core PPI m/m is out at 8:30 AM EST. This is major.

- PPI is out at 8:30 AM EST. This is major.

- Housing Starts are out at 8:30 AM EST. This is major.

- Capacity Utilization Rate is out at 9:15 AM EST. This is not major.

- Industrial Production m/m is out at 9:15 AM EST. This is not major.

- FOMC Meeting Minutes are out at 2 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:35 AM EST before the NAHB Housing numbers came out. 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 9:35 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 low at around 9:35 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 Ninja Trader platform

Bias

Yesterday we gave the markets an upside bias by simply following our rules of Market Correlation. Gold and the Bonds were both trading lower and usually that bodes well for an upside day. The Dow closed 222 points higher and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is neutral.

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

Commentary

So the day after a major holiday in the United States and what does the market do but trade higher. The economic news reported yesterday wasn’t too stellar with both NAHB Housing and Empire State both missing expectation. But that didn’t matter. WHY? Because the markets typically trade higher after a major holiday due to pent up demand with no trading the day before. Does this rule work all the time? Usually yes, but not always. Market Correlation must still be taken into consideration. Today we the Fed Meeting Minutes and this is a major market mover with the ability to shift market direction.

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