Meeting Minutes Doesn’t Torpedo Markets

Good Morning Traders,

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

US Dollar: Jun. USD is Down at 96.875.
Energies: Jun Crude is Up at 51.82.
Financials: The June 30 year bond is Up 4 ticks and trading at 153.21.
Indices: The June S&P 500 emini ES contract is 32 ticks Higher and trading at 2410.00.
Gold: The June gold contract is trading Up at 1256.60. Gold is 35 ticks Higher than its close.

Initial Conclusion

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 Up+ 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 all of Europe is trading higher.

Possible Challenges To Traders Today

– Unemployment Claims is out at 8:30 AM EST. This is major.

– Goods Trade Balance is out at 8:30 AM EST. This is major.

– Prelim Wholesale Inventories is out at 8:30 AM. This is not major.

– FOMC Member Brainard Speaks at 10 AM EST. This is major.

– Natural Gas Storage is out at 10:30 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 10:30 AM EST with no real economic news in sight. 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 10:30 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 10:30 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 30 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.

Bias

Yesterday we gave the markets a neutral bias as the indices had no sense of direction yesterday morning. The Dow rose 75 points and the other indices gained 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.

Commentary

So yesterday the FOMC Meeting Minutes revealed that most members believe a rate increase will be forthcoming “real soon” without of course mentioning what “real soon” means. We think it will probably be in June although I would like to say later as opposed to sooner but that isn’t up to us to decide. We could say that something doesn’t make sense but the powers that be say otherwise. The economic news yesterday wasn’t too stellar as Existing Home Sales dropped and didn’t meet expectation and Crude Oil Inventories came in less than expected as well. Today we have Unemployment Claims which is always major and a proven market mover.