Empire State Saves the Day

Good Morning Traders,

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

US Dollar: Sept. USD is Up at 91.840.
Energies: Oct Crude is Up at 50.61.
Financials: The Dec 30 year bond is Down 6 ticks and trading at 154.27.
Indices: The Dec S&P 500 emini ES contract is 21 ticks Higher and trading at 2502.50.
Gold: The Dec gold contract is trading Down at 1318.50. Gold is 65 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 Up+ 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.

At this hour all of Asia is trading higher. As of this writing all of Europe is trading Higher.

Possible Challenges To Traders Today

 NAHB Housing Market Index is out at 10 AM EST. This is major.

 TIC Long-Term Purchases is out at 4 PM EST. This is major.

Treasuries

We’ve elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it’s liken to a seesaw, when up goes up the other should go down and vice versa.

On Friday the ZB made it’s move at around 9:30 AM EST right at the opening bell. The ZB hit a High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 9:30 AM EST and the YM was moving Higher at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a High at around 9:30 AM and the YM hit a Low. These charts represent the newest version of Trend Following Trades and I’ve changed the timeframe to a 30 minute chart to display better. This represented a shorting opportunity on the 30 year bond, as a trader you could have netted about 20 plus ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly. Please note that the front month for the ZB and the YM contract is now December, 2017.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform.

Bias

On Friday we called for a Neutral bias as the indices didn’t seem to have any sense of direction. The Dow gained 65 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is to the Upside.

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

Commentary

On Friday the one bright spot in economic news was the Empire State Manufacturing Index which showed a gain of 24.4 versus 18.2 expected. This showed optimism and even North Korea firing a missile over Japan didn’t stop the market advance. Today we have NAHB Housing numbers coming out at 10 AM. NAHB is major and a proven market mover. Tomorrow President Trump is scheduled to address the United Nations and this is his first speech to the UN.