Markets Swoop for New Years

US Dollar: Mar. USD is Down at 91.655.

Energies: Feb ’18 Crude is Up at 60.54.

Financials: The Mar 30 year bond is Down 18 ticks and trading at 152.14.

Indices: The Mar S&P 500 emini ES contract is 8 ticks Higher and trading at 2678.00.

Gold: The Feb gold contract is trading Up at 1311.80.  Gold is 25 ticks Higher than its close.

Initial Conclusion

This is not a correlated market.  The dollar is Down-  and Crude is Up+  which is normal and 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 S&P is 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 Asia is trading mainly Higher with the exception of the Nikkei and Sensex exchanges which are Lower.   As of this writing Europe is trading mainly Lower with the exception of the Spanish Ibex exchange which is Higher at this hour.

Possible Challenges To Traders Today

  • No major economic news.

  • Lack of major economic news.

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.

Last Friday the ZB made it’s move at around 8 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 8 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 8 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 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.

Charts Courtesy of MultiCharts built on an AMP platform.

ZB

 

YM

Bias

On Friday we gave the markets a Neutral bias as the markets didn’t seem to have any sense of direction last Friday morning.  The Dow dropped 118 points and the other indices lost ground as well.  Today we aren’t dealing with a correlated market however our bias is to the Upside.

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

Commentary

The day before the New Years weekend started one would think that the markets would want to roar into the New Years on a positive note.  That didn’t occur last Friday as the markets drifted downward all day.  It could very well be that the markets were exhausted and just needed to take a break.  The same might be said of traders themselves as 2017 seemed to be a year on the endless rally.  Besides Auto or Total Vehicle Sales out and the FOMC Meeting Minutes they two reports could in fact change market direction so it’s something to be mindful of if trading today.

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.