Good Morning Traders,
As of this writing 4:20 AM EST, here's what we see:
US Dollar: Dec. USD is Down at 92.885.
Energies: Nov Crude is Up at 51.34.
Financials: The Dec 30 year bond is Up 1 tick and trading at 153.04.
Indices: The Dec S&P 500 emini ES contract is 1 tick Higher and trading at 2549.75.
Gold: The Dec gold contract is trading Up at 1298.10. Gold is 16 ticks Higher than its close.
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 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 Higher. As of this writing Europe is trading mainly Higher with the exception of the London exchange which is Lower at this hour.
Possible Challenges To Traders Today
CPI is out at 8:30 AM EST. This is major.
Core CPI is out at 8:30 AM EST. This is major.
Retails Sales is out at 8:30 AM. This is major.
Core Retail Sales is out at 8:30 AM EST. This is major.
Prelim UoM Consumer Sentiment is out at 10 AM. This is major.
Prelim UoM Inflation Expectations is out at 10 AM. This is major.
Business Inventories is out at 10 AM EST. This is major.
FOMC Member Evans Speaks at 10:25 AM. This is major.
FOMC Member Kaplan Speaks at 11:30 AM. This is major
Federal Budget Balance is out at 3 PM EST. This is major.
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 12:30 AM 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 12:30 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 12:30 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 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. 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
Yesterday our bias was to the downside as the Bonds and Gold were trading Higher yesterday morning and this usually reflects a downside bias. The markets didn't disappoint as the Dow dropped 32 points and the other indices lost ground as well. Today 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.
Yesterday we had a virtual mini tsunami eco news wise as there were 9 different reports, most of which were major and could have moved the markets in any direction. Yesterday morning we called for a downside bias as we simply followed our rules of Market Correlation and they didn't disappoint or let us down. All 3 major US exchanges lost ground and dropped yesterday regardless of economic news. Today we are faced with a similar situation as we have 9 economic news reports again and it's Friday the 13th which could be very good or bad depending on your point of view. But as in all things, only time will tell...
Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.
There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.
In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.