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 Higher and Crude is trading Up+ which is not 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.

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

Possible Challenges To Traders Today

NFIB Small Business Index is out at 6 AM EST. This is major.
PPI m/m is out at 8:30 AM EST. This is major.
Core PPI m/m is out at 8:30 AM EST. This is major.
30-y Bond Auction starts at 1 PM EST. This is major.
Federal Budget Balance 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 11 AM EST. 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 11 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 11 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 a dozen 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 the Bonds and Gold were both pointed higher and in theory the indices should have been pointed lower and yet they were trading higher, hence the neutral bias. The Dow gained 57 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and will maintain a Neutral bias.

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

Commentary

Yesterday Bitcoins debuted on the futures market and some may herald this as needed, wanted etc. I always find interesting that every few years whenever the markets want to increase volume, they invent a new vehicle. Case in point years ago the markets invented Single Stock Futures which allowed tremendous leverage if someone wanted to own stocks with limited funds. The problem? No liquidity. Investing in Single Stock Futures is liken to roach motel, once you’re in it hard to get out. Bitcoins is not legal tender (although some argue that point). The reason is because it’s not being pegged against any other legal currency. The CBOE (Chicago Board of Options Exchange) announced that Sunday, December 19th was the first trading day for XBT; the futures contract symbol for Bitcoins. Time will tel how it all works out…

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.