Neutral Bias = Neutral Results – again

Good Morning Traders,

As of this writing 3:50 AM EST, here's what we see:

US Dollar: Sept. USD is Down at 94.005.
Energies: Aug Crude is Up at 47.02.
Financials: The Sept 30 year bond is Up 11 ticks and trading at 154.13.
Indices: The Sept S&P 500 emini ES contract is 4 ticks Higher and trading at 2472.25.
Gold: The Aug gold contract is trading Up at 1246.70. Gold is 12 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and Crude is Up+ which is normal but 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 Up+ and Crude is trading Up+ which is not correlated. Gold is trading Down- which is not 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.

At this hour Asia is trading mainly Lower with the exception of the Singapore exchange which is trading Higher. As of this broadcast all of Europe is trading Lower with the exception of the London exchange which is fractionally Higher.

Possible Challenges To Traders Today

– No major economic news to speak of.

– 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 11 AM EST with no economic news in sight. 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 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 11 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 12 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 contract is now September, 2017.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a neutral bias as the futures didn't seem to have a sense of direction. The Dow dropped 29 points, the S&P gained less than 1 point and the Nasdaq gained about 5. All in all a neutral day. 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 morning we were attempting to find correlation in the markets as is our norm for the day but to our dismay we couldn't really find any. The USD was trading higher yesterday morning as was the Bonds and Crude. This would usually signal a downside bias except there was no follow thru on the futures indices. They were trading higher when in reality they should have been pointed lower. As such our bias had to be neutral as that means the markets could go in any direction and they did yesterday. The Dow was down but the S&P and Nasdaq was up fractionally. Today we have no economic news on the docket for the US markets, either major or otherwise. It will be interesting to see how the markets react to this and as always, time will tell.....