E.O. Doesn’t Change Markets

US Dollar: Dec. USD is Up at 93.075.

Energies: Nov Crude is Up at 51.95.

Financials: The Dec 30 year bond is Down 2 ticks and trading at 153.30.

Indices: The Dec S&P 500 emini ES contract is 4 ticks Higher and trading at 2553.75.

Gold: The Dec Gold contract is trading Up at 1307.10.  Gold is 25 ticks Higher 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 Higher and Crude is trading Up+ which is not 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.

At this hour all of Asia is trading Higher.   As of this writing Europe is trading mainly Higher with the exception of the Spanish IBEX exchange which is Lower at this hour.

Possible Challenges To Traders Today

• Empire State Mfg Index is out at 8:30 AM EST, this is major.

• Federal Budget Balance is out at 2 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 11:30 AM EST.   The ZB hit a Low at around that time and the YM hit a High.  If you look at the charts below ZB gave a signal at around 11:30 AM EST and the YM was moving Lower at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a Low at around 11:30 AM and the YM hit a High.  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 Long opportunity on the 30 year bond, as a trader you could have netted about 25 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 our bias was neutral as the indices didn’t have any sense of direction Friday morning, hence the neutral bias.  The Dow gained 31 points 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

On Friday we had a virtual mini tsunami eco news wise as there were 9 different reports, most of which were major and could have moved the markets in any direction.  Those economic reports didn’t serve to move the markets to the downside as all 3 US indices closed higher.  On Thursday evening the President decided that he was going to take matters into his own hands as he signed an E.O. (Executive Order) halting all subsidies payable to insurers.  It isn’t quite clear as to when this will take effect and should have served to scare the markets but didn’t.  Today we have limited eco news to drive the markets, so time will tell…