The Bulls Stampede

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Up at 97.410 the US Dollar is up 22 ticks and trading at 97.410.

Energies: April Crude is down at 32.74.

Financials: The Mar 30 year bond is up 9 ticks and trading at 166.15.
Indices: The Mar S&P 500 emini ES contract is down 15 ticks and trading at 1932.50.

Gold: The April gold contract is trading up at 1217.50. Gold is 74 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and crude is down- which is normal and 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 up and Crude is trading lower which is correlated. Gold is trading up which is not 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 lower with the exception of Singapore which traded fractionally higher. As this writing Europe is trading mainly lower with the exception of the Spanish IBEX and Milan exchanges which are trading higher at this hour.

Possible Challenges To Traders Today

- S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.

- CB Consumer Confidence is out at 10 AM EST. This is major.

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

- Richmond Manufacturing Index is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:30 AM EST with no real economic news in sight. 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 8:30 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 low at around 8:30 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 an upside bias as the Bonds and Gold were all trading down and this is usually a bullish signal for the indices. The markets didn’t disappoint as the Dow traded 229 points higher and the other indices traded higher as well. 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

Yesterday with no real economic news in sight the markets traded higher. From our perspective all we did was to follow our rules of market correlation which told us prior to 5 AM EST that it would be a bullish session for the markets. This despite not-too-stellar Flash Manufacturing PMI numbers which came in at 51.0 versus 52.3 expected. Today we have much more on the economic docket as we have Consumer Confidence and Existing Home Sales which are always major and proven market movers.