Neutral Bias = Mixed Day

Good Morning Traders,

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

US Dollar: Mar. USD is Down at 100.880.

Energies: April Crude is Down at 54.18.

Financials: The Mar 30 year bond is Up 8 ticks and trading at 152.02.

Indices: The March S&P 500 emini ES contract is 12 ticks Lower and trading at 2359.75.

Gold: The April Gold contract is trading Up at 1255.40. Gold is 40 ticks Higher 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 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 Down and Crude is trading Down 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.

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

Possible Challenges To Traders Today

–  New Home Sales is out at 10 AM EST. This is major.

–  Revised UoM Consumer Sentiment is out at 10 AM. This is not major.

–  Revised UoM Inflation Expectations is out at 10 AM EST. This is not 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 11:30 AM EST with no news to speak of. 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 11:30 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 11:30 AM EST 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 10 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 a neutral bias as the markets didn’t give us any sense of direction. The Dow gained 35 points and the S&P gained 1 but the Nasdaq dropped 25. Today we aren’t dealing with a correlated market and our bias is to the downside.

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

Commentary

Yesterday morning the markets didn’t give us any conviction or sense of direction hence the neutral bias which means the markets could go in any direction. From our perspective we just followed our rules of market correlation which haven’t let us down as of yet. Today the economic news is light with only New Home Sales as a major market mover. Just so you’re aware Real Estate news and reports are still major market movers with the ability to change market direction.