Upside Bias = Upside Day

Good Morning Traders,

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

US Dollar: Sept. USD is Down at 91.630.

Energies: Nov Crude is Up at 50.57.

Financials: The Dec 30 year bond is Up 1 tick and trading at 154.12.

Indices: The Dec S&P 500 emini ES contract is 1 tick Higher and trading at 2502.75.

Gold: The Dec gold contract is trading Up at 1311.90.  Gold is 10 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 Mixed 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 Mixed with half the exchanges Higher and the other half Lower.  As of this writing Europe is also trading Mixed.

Possible Challenges To Traders Today

•  Building Permits are out at 8:30 AM EST.  This is major.

•   Current Account is out at 8:30 AM EST.  This is major.

•   Housing Starts is out at 8:30 AM EST.  This is major.

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

On Friday the ZB made it’s move at around 9:30 AM EST right at the opening bell.  The ZB hit a High at around that time and the YM hit a Low.  If you look at the charts below ZB gave a signal at around 9:30 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 High at around 9:30 AM and the YM hit a Low.  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 15 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.  Please note that the front month for the ZB and the YM contract is now December, 2017.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform.

 

Bias

Yesterday we called for an Upside bias as both Gold and the Bonds were trading Lower Monday morning and this usually reflects an Upside day.  The markets didn’t disappoint as the Dow rose 63 points and the other indices gained ground as well.  We aren’t dealing with a correlated market and our bias is Neutral.

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

Commentary

Yesterday our bias was to the Upside even though the NAHB Housing numbers came in lower than expected.  NAHB came in at 64 versus an expectation of 67.  The markets however didn’t disappoint and rose higher.  Today we have more economic news on the horizon and also have President Trump speaking and addressing the United Nations today.  Tomorrow we have the FOMC Meeting…