House Vote Shelved

Good Morning Traders,

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

US Dollar: Jun. USD is Up at 99.690.
Energies: May Crude is Up at 47.92.
Financials: The June 30 year bond is Down 7 ticks and trading at 150.10.
Indices: The June S&P 500 emini ES contract is 16 ticks Higher and trading at 2344.00.
Gold: The April gold contract is trading Down at 1244.20. Gold is 30 ticks Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and crude is Up+ which is not normal but 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 Up 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 higher. Currently Europe is trading higher as well.

Possible Challenges To Traders Today

– Core Durable Goods Orders is out at 8:30 AM EST. This is major.

– Durable Goods Orders is out at 8:30 AM. This is major.

– Flash Manufacturing PMI out at 9:45 AM EST. This is major.

– Flash Services PMI is out at 9:45 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 10 AM at around the time New Home Sales was reported. 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 10 AM 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 10 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 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 Click on an image to enlarge it.

Bias

Yesterday we gave the markets an upside bias as both the Bonds and Gold were trading lower. The Dow dropped 5 points and the other indices dropped fractionally. 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.

Commentary

Yesterday we gave the markets an upside bias as both the Bonds and Gold were trading lower yesterday morning and ordinarily this represents an upside bias. Most of the session the indices remained in positive territory as predicted. However at around 2 PM EST in the afternoon it became apparent that the long awaited vote from the House of Representatives on healthcare would NOT be forthcoming as the vote was postponed. Why? Because the Republicans know that they don't have enough enough votes to ensure passage to the Senate therefore they postponed the vote. They can try to browbeat their fellow Republicans as much as they like but it probably won't help. The Republicans who won't side with Trump and Ryan know that this bill is inadequate and will raise premiums and their constituents back home will never forgive or forget. Trump doesn't care about that because he wants the bill passed so he can work on other issues (tax cuts, infrastructure, etc.). He doesn't care because bill has nothing to do with him or those close to him personally. Yet many Republicans who are opposed to this bill have already stated "why not fix this bill and do the job right the first time" and they are right. This is what happens when you have inexperienced people running government because they don't understand the process. Case-in-point the second travel ban was again and also shot down by judges. Now there is the prospect that this bill may be voted on today however we think that if the bill isn't fixed, it won't pass. BTW – as we've stated previously: if you want to drain the swamp, you need to know how the swamp operates.