March to 20,000 Continues

Good Morning Traders,

As of this writing 3:35 AM EST, here's what we see:

US Dollar: Mar. USD is Down at 103.060.
Energies: February Crude is Up at 52.77.
Financials: The Mar 30 year bond is Down 3 ticks and trading at 150.15.
Indices: The March S&P 500 emini ES contract is 10 ticks Higher and trading at 2255.00.
Gold: The February gold contract is trading Up at 1164.40. Gold is 24 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and crude is Up+ which is normal and the 30 year bond is trading Down-. 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 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 higher with the exception of the Hang Seng exchange which traded lower. As of this writing Europe is trading mainly higher with the exception of the London exchange which is fractionally lower.

Possible Challenges To Traders Today

– Total Vehicle Sales – All Day. This is major.

– FOMC Meeting Minutes 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.

Yesterday the ZB made it's move at around 10:30 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 10:30 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 low at around 10:30 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 an upside bias as both the Bonds and Gold were both trading higher yesterday morning and this is indicative of an upside move, hence our bias was to the upside. The Dow rose 119 points and the other indices rose as well. Today we aren't dealing with a correlated market however our bias is to the upside.

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

Commentary

The first day back after a long holiday weekend and we couldn't ask for a better way to start the New Year off. Ordinarily I would urge caution on the first trading day of the New Year but it was apparent that the markets wanted to rise and they did. The Dow gained 119 points and the other indices rose as well. The markets had good economic news in terms of Construction Spending and ISM but the real market mover yesterday was the news that Ford Motor Company has decided to back off building a 1.6 Billion dollar plant in Mexico and in effect has created hundreds of jobs for American workers in Detroit. Why? President-Elect Trump threaten to raise tariffs by 35% for any vehicle produced in Mexico and "exported" to the US. This is the one area that I completely agree with Trump on. He knows all too well that the only way to get the message across is to hit them in pocketbook. That's something they understand, in the meantime the current White House has booed this move claiming that other countries will raise tariffs on American mad goods exported to their countries. So whats the alternative current POTUS? Allow more American jobs to be lost because we don't have the guts to do the right thing? BS to that...