Happy Presidents Day

Good Morning Traders,

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

US Dollar: Mar. USD is Up at 100.635.

Energies: March Crude is Up at 53.82.

Financials: The Mar 30 year bond is Up 4 ticks and trading at 150.30.

Indices: The March S&P 500 emini ES contract is 12 ticks Lower and trading at 2342.50.

Gold: The April Gold contract is trading Down at 1239.10. Gold is 25 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 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 Down and Crude is trading Up which is 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.

Asia traded mainly lower with the exception of the Singapore and Sensex exchanges which traded higher. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

–  CB Leading Index m/m is out at 10 AM EST.  This is not major.

–  Lack of major economic news.

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 economic news was reported. 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 10 AM 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 10 AM EST 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 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 Click on an image to enlarge it.

Bias

Yesterday we gave the markets a downside bias as both Gold and the Bonds were trading higher and this usually results in the indices trading higher. The Dow was trading lower pretty much all session long until the last 30 minutes or so. The Dow traded up by 8 points however the S&P and Nasdaq both lost ground. 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 the economic news reported was pretty much all positive which made a downside day difficult. The markets appeared to be flip flopping between positive and negative territory however in the last 30 minutes the Dow rose fractionally and the S&P and Nasdaq fell fractionally. Today we do not have much in the way of economic news and given that Monday is Presidents Day in the United States we suspect traders will want to head for the exit doors early. But as in all things, only time will tell. Monday will be an abbreviated session with many markets closing at 12 noon.