Good Morning Traders,

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

US Dollar: Down at 98.085 the US Dollar is down 98 ticks and trading at 98.085.
Energies:
April Crude is down at 32.56.
Financials:
The Mar 30 year bond is up 16 ticks and trading at 166.04.
Indices: The Mar S&P 500 emini ES contract is down 42 ticks and trading at 1932.25.
Gold:
The April gold contract is trading up at 1233.80. Gold is 134 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.

Asia traded mainly lower with the exception of the Singapore exchange which traded slightly higher. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- Chicago PMI is out at 9:45 AM EST. This is major.

- Pending Home Sales m/m is out at 10 AM EST. This is major.

Currencies

On Friday the Swiss Franc made it’s move at around 8:30 AM EST after the economic news was released. 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

Pre-Market Global Review

Pre-Market Global Review

Bias

On Friday we gave the markets an upside bias as the Bonds and Gold were trading down and usually this is a good prescription for an upside bias. The markets however had other ideas and the Dow dropped 57 points,the Nasdaq gained 8 and the S&P dropped by 4. 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

On Friday we gave the markets an upside bias as both the Bonds and Gold were pointed downward and ordinarily this would signal an upside bias. Ironically enough the markets did open higher based on positive GDP numbers which came in at 1.0 versus 0.4 expected. The Dow remained in positive territory until 1:30 PM EST when Fed Member Brainard mentioned something about 3 rate hikes. Mind you that it doesn’t matter what she said exactly as the markets probably took the statement out of context anyway. What does matter is how the markets will interpret what is said. In other perception becomes reality.

I have long stated that the Fed needs to be very aware of what is being said and when it’s said. In the business world we’ve long known the time-honored tradition of speaking with a unified or united front and nothing is said without it being reviewed and discussed beforehand. Apparently the Fed allows allows their members full privilege to state what they want and when they want. Under ordinary conditions this is fine, however what they say has a direct ramification on us; not them but us. The one criticism that I have of this Fed is they need to pull the reigns of their notion of free speech as it will affect us, not them…

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.

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