MTP Weekend

Good Morning Traders,

As of this writing 3:45 AM EST, here’s what we see:

US Dollar: Mar. USD is Down at 100.940.

Energies: February Crude is Up at 52.61.

Financials: The Mar 30 year bond is Up 33 ticks and trading at 153.10.

Indices: The March S&P 500 emini ES contract is 41 ticks Lower and trading at 2262.25.

Gold: The February gold contract is trading Up at 1213.00.  Gold is 168 ticks Higher than its close.

Initial Conclusion

This is a nearly correlated market.  The dollar is Down- and crude is Up+  which is normal but the 30 year bond is trading Up+. 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 Down- and Crude is trading Up+ which is 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.

Asia traded mixed with half the exchanges trading higher and the other half lower. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

–  Empire State Manufacturing Index is out at 8:30 AM.  This is major.

–  FOMC Member Dudley Speaks at 8:45 AM EST.  This is major.

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

–  Treasury Sec Lew Speaks at 10 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.

Last Friday the ZB made it’s move at around 10:30 AM EST with no real economic news in sight.  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 10:30 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 10:30 AM EST 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 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

Las Friday we gave the markets a neutral bias as the futures weren’t moving with any sense of conviction with about 8 economic reports and the day before a holiday (MLK Day).  The Dow dropped 5 points but the S&P and Nasdaq both rose.  All in all, a neutral day.  Today we are dealing with a nearly correlated market and it’s correlated to he downside, hence our bias is to the downside.

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

Commentary

This past weekend, all you heard in the news was Trump Inauguration Day which is this Friday where he will be sworn in as the 45th President of the United States.  What were they saying?  They’ve made it seem as though Trump is going to repeal Obamacare Day One with no replacement as of yet.  Senator Rand Paul was on one of those Meet the Press shows and he discussed his plan which includes Health Savings Accounts and when you hear HSA’s; you can be assured of one thing: it will be a high deductible plan which is out of reach for most Americans.  Some of those plans will force the individual to pay up to $3,000 per person or $6,000 per family before the “insurance” pays for one dime of benefit.  To me this is not insurance, it is a catastrophic insurance plan which will only pay a benefit if the person incurs a serious illness and in which they must fork out $3-6,000 out of pocket and figure out how they’re going to fund an HSA.   What the GOP and Trump haven’t figured out yet is if this is in fact the case, consumer spending, retail sales, etc.  will go down in the US and that will be a tragedy for this economy.  This plus given the fact that the Fed has committed to rate hikes will act as the proverbial “kiss of death” for the economy going forward. I would have thought that for such “smart people” they would have thought about this in advance