The Day After

US Dollar: Dec. USD is Down at 93.405.

Energies: Jan ’18 Crude is Up at 56.89.

Financials: The Mar 30 year bond is Down 11 ticks and trading at 153.11.

Indices: The Dec S&P 500 emini ES contract is 13 ticks Higher and trading at 2672.25.

Gold: The Feb gold contract is trading Up at 1257.40.  Gold is 87 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 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 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 all of Asia is trading Lower with the exception of the Aussie exchange which is trading Higher.   As of this writing Europe is trading mainly Lower with the exception of the Spanish IBEX and Milan exchanges which are trading fractionally Higher.

Possible Challenges To Traders Today

• Retail Sales is out at 8:30 AM EST.  This is major.

• Core Retail Sales is out at 8:30 AM EST.  This is major.

• Unemployment Claims are out at 8:30 AM EST.  Major

• Import Prices m/m are out at 8:30 AM EST.  This is not major.

• CB Leading Index m/m is out at 9:30 AM EST.  Major.

• Flash Manufacturing PMI is out at 9:45 AM EST.  Major.

• Flash Services PMI is out at 9:45 AM EST.  Major.

• Business Inventories m/m is out at 10 AM EST.  Not Major.

• Natural Gas Storage is out at 10:30 AM 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 12 PM 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 12 PM 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 12 PM 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 shorting opportunity on the 30 year bond, as a trader you could have netted about 20 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 as it was FOMC Day and we always maintain a neutral bias on that day.  The Dow gained 81 points, the S&P dropped 1 and the Nasdaq gained 13.  Today we aren’t dealing with a correlated market and our bias is to the upside.

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

Commentary

We said in yesterday’s edition that in all likelihood the Federal Reserve would probably raise the FFR or overnight rate and sure enough they did.  They raised a quarter point which isn’t much but also promised to raise 3 more times in 2018.  They claim that this was due to a very robust job market but quite frankly another reason to raise would be inflation but inflation is nowhere to be seen.  So why did the Fed raise?  Janet Yellen at this point isn’t going to do anything controversial as she’s leaving office next month but the remaining members of the Fed are still there and they know Trump wants higher rates.  Why?  So the very wealthy can earn passive income on bonds and higher interest rates on bank holdings.   This is not the time of year to raise but the Fed didn’t hike at any other meeting, so this was it for 2017.  What effects will this have?  Only time will tell