To Hike or Not to Hike?
|Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Dec. USD is Up at 97.975.
Energies: December Crude is Down at 51.46.
Financials: The Dec 30 year bond is Up 3 ticks and trading at 164.10.
Indices: The December S&P 500 emini ES contract is 6 ticks higher and trading at 2139.50.
Gold: The December gold contract is trading Down at 1269.60. Gold is 3 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is Up+ and crude is Down- which is normal and 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 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 mixed with half the exchanges higher and the other half lower. As of this writing Europe is trading mixed as well.
Possible Challenges To Traders Today
– Philly Fed Manufacturing Index is out at 8:30 AM. This is major.
– Unemployment Claims are out at 8:30 AM EST. This is major.
– Existing Home Sales are out at 10 AM EST. This is major.
– CB Leading Index m/m is out at 10 AM EST. This is 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 11 AM EST when most of 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 11 AM 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 11 AM EST and the YM hit a high. These charts represent the latest 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 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 downside bias as the Bonds and Gold were both trading higher and ordinarily this would represent a downside bias. The markets had other ideas as the Dow gained 41 points and the other indices gained ground as well although fractionally. Today our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday it seemed as though the market was waiting for something to occur. Yesterday morning the market was poised to go lower but when the session opened, that didn’t occur. Instead the market went higher but then the Beige Book came out at 2 PM EST and guess what? The Dow dropped 50 points. It seems as though the US economy isn’t as robust as many seem to think it is as the growth was minimal at best. For some time now we’ve been saying that the economy is not a booming one and although the recession ended (in theory) some time ago; the US economy hasn’t been anywhere near the 5% growth rate that we expect when a recession is “over”. Because of this some economists are now saying that the Fed won’t raise in December as many expect they will. I don’t think they’ll raise either, but for a different reason. Why would the Fed raise in December and potentially ruin the holiday shopping season? If they raise there is a valid fear that consumers will tighten and not spend and I don’t think they want that. If they decide to raise it will probably be in 2017 but again as in all things, only time will tell.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.