Markets Still Neutral

Good Morning Traders,

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

US Dollar: Up at 97.025 the US Dollar is up 421 ticks and trading at 97.025.
Energies: April Crude is up at 32.58.
Financials: The Mar 30 year bond is down 9 ticks and trading at 166.10.
Indices: The Mar S&P 500 emini ES contract is up 71 ticks and trading at 1932.25.
Gold: The April gold contract is trading down at 1209.20. Gold is 216 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.

- Lack of major economic news.

Currencies

Last Friday the Swiss Franc made it’s move at around 9 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 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 low at around 9 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 an upside bias as the USD, Crude and Gold were all trading down and ordinarily this would represent a bullish signal for the markets. The Dow closed down 21 points but the NASDAQ traded higher and the S&P closed flat with neither a gain or loss, so overall a mixed day. Today we aren’t dealing with a correlated market however our bias is to the upside.

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

Commentary

So the CPI data came out last Friday and already the pundits and analysts are lining up to decide and determine what the Fed will do next. Half say the Fed will hike and the other half say the Fed won’t. We don’t think the Fed will cut as they can only go 25 basis points and to do so would be to admit a mistake and we don’t think they’ll do that. We do think they’ll leave rates alone for the time being which means they won’t hike. I think they know that they made a mistake and are loath to repeat it. This, thus far has been the worst earnings season in years and the only thing holding this economy together has been job growth. But don’t worry; if things get worse I have no doubt that employers will reduce payrolls forthwith. So if the Federal Reserve wants to create a recession; just keep raising rates and sooner or later it will come home to roost. However we don’t think they’ll want to be accused of starting a recession….