Factory Orders Bolsters Markets

Good Morning Traders,

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

US Dollar: Dec. USD is Down at 100.360.

Energies: January Crude is Down at 50.68.

Financials: The Dec 30 year bond is Up 8 ticks and trading at 150.17.

Indices: The December S&P 500 emini ES contract is 6 ticks Higher and trading at 2211.50.

Gold: The December Gold contract is trading Up at 1172.50.  Gold is 24 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 Up.  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 Down which is 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.

All of Asia traded Higher and as of this writing all of Europe is trading Higher as well.

Possible Challenges To Traders Today

–  JOLTS Job Openings is out at 10 AM.  This is major.

–  Crude Oil Inventories is out at 10:30 AM EST.  This is major.

–  Consumer Credit m/m is out at 3 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.

Yesterday the ZB made it’s move at around 10 AM EST after the Factory Order numbers were released.  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 10 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 10 AM EST 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 30 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.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

 

Bias

Yesterday we gave the markets a neutral bias which means it could go in any direction.  Initially the Dow dropped below Monday’s close but after 12 noon proceeded to advance and gained 36 points.  The other indices gained ground as well.  Today we aren’t dealing with a correlated market and will maintain a neutral bias.

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

Commentary

So initially the markets moved lower yesterday morning but after Factory Orders were released began to gain some traction.  After 12 Noon the Dow really gained ground and advanced.  The Nasdaq and S&P gained ground as well.  Bill Gross raised the fire alarm yesterday after claiming that President-elect Trump’s trade policies would pose a treat to global trade and would in effect hurt the US economy.  Now I don’t know if Trump’s protectionist policy would hurt the US but what I can say with the utmost authority is this “global” trade and “global economy” has hurt the US worker thru no fault of their own.  The one idea that Trump has that I like is his stance on outsourcing: “you want to relocate jobs and re-import those now foreign made products back to the US?  Fine, now we charge you a 35% tariff on those goods at the border.”  Donald Trump is wise enough to know that rhetoric won’t work.  You can’t shame anyone into being anti-American but you can hit them in their pocketbook and that’s something that most CEO’s know and are aware of.   This generation of businessperson doesn’t care if they’re called un-American because the only thing they value is the almighty dollar and have no regard (or very little) for patriotism.