Markets Up …but not by much

US Dollar: Dec. USD is Down at 94.280.

Energies: Dec Crude is Down at 56.55.

Financials: The Dec 30 year bond is Down 3 ticks and trading at 152.10.

Indices: The Dec S&P 500 emini ES contract is 6 ticks Lower and trading at 2580.50.

Gold: The Dec gold contract is trading Down at 1272.20.  Gold is 67 ticks Lower than its close.

Initial Conclusion

This is not a correlated market.  The dollar is Down- and Crude is Down-  which is not 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 indices are Lower and Crude is trading Down- which is not correlated. Gold is trading Down- which is not 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 Lower.   As of this writing all of Europe is trading Higher.

Possible Challenges To Traders Today

Fed Chair Yellen Speaks at 5 AM EST in Frankfurt.

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.

Mortgage Delinquencies.  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 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 10 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 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 12 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.

ZB

 

YM

Bias

Yesterday we called for a Downside bias as the USD, BONDS and Gold were all trading Higher and this usually signals a downside day.  The Dow however gained 17, the S&P gained only 3 and the Nasdaq gained 7.  A gain to be sure but not by much.  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

We called for a downside day yesterday but the markets had other ideas as the indices did show a gain but not by much.  Our take is that after the pullback witnessed on Friday the Smart Money (aka institutionals) decided that enough was enough.  However GE stock suffered a loss yesterday after revealing their transformation plan which apparently no one liked.  This is bound to have an effect on today’s market.

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.