Good Morning Traders,
As of this writing 4 AM EST, here's what we see:
US Dollar: Sept. USD is Up at 93.670.
Energies: Sept Crude is Up at 49.79.
Financials: The Sept 30 year bond is Down 7 ticks and trading at 154.16.
Indices: The Sept S&P 500 emini ES contract is 22 ticks Lower and trading at 2467.50.
Gold: The Dec gold contract is trading Up at 1284.00. Gold is 48 ticks Higher than its close.
This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not normal but 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 Down- and Crude is trading Up+ which is correlated. Gold is trading Up 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 with the exception of the Singapore exchange which is fractionally higher. At this hour Europe is also trading mainly Lower with the exception of the Milan exchange which is fractionally higher.
Possible Challenges To Traders Today
– PPI is out at 8:30 AM EST. This is major.
– Core PPI is out at 8:30 AM. This is major.
– Unemployment Claims are out at 8:30 AM EST. This is major.
– FOMC Member Dudley Speaks at 10 AM EST. This is major.
– Natural Gas Storage is out at 10:30 AM EST. This is major.
– 30-y Bond Auction is out at 1 PM EST. This is major.
– Federal Budget Balance is out at 2 PM EST. This is major.
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 AM EST with no 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 11 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 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 20 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 contract is now September, 2017.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Yesterday we gave the markets a downside bias as the Bonds and Gold were both trading higher yesterday morning and this usually reflects a downside trend for the indices. The Dow dropped 37 points and the other indices lost ground as well. 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.
It seems as though this North Korea brouhaha is becoming more serious by the day. Seemingly the Chinese aren't able to hold the North Koreans back mouth wise and that is a recipe for disaster with this president as he will not back down. As we reported yesterday the North Koreans have already stated that they will target US owned Guam in the Pacific. This is US sovereign territory and Trump will answer the call if need and already stated that any threat to the United States will be met with fire and fury and were I the North Koreans I would take this seriously. Trump knows that if he backs down, his credibility is gone and his pride won't allow that. He also knows that he won't get anything passed in Congress if this threat is not answered. As someone who's lived thru the Cuban Missile and the Vietnam War I can only hope that cooler minds will prevail and that a diplomatic solution is found.
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.