Earnings Season Starts

Good Morning Traders,

As of this writing 5:35 AM EST, here’s what we see:

US Dollar: Up at 80.235, the US Dollar is up 14 ticks and is trading at 80.235.
Energies: Aug Oil is down at 103.39.
Financials: The Sept 30 year bond is up 1 tick and trading at 136.20.
Indices: The Sept S&P 500 emini ES contract is down 5 ticks and trading at 1959.25.
Gold: The August gold contract is trading up at 1323.70 and is up 75 ticks from its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and oil is down- which is 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 lower and the US dollar is trading up which is correlated. Gold is trading higher which is not correlated with the US dollar trading up. 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.

All of Asia traded lower. As of this writing Europe is trading mainly lower with the exception of the Milan and Spanish IBEX exchanges which are trading higher.

Possible Challenges To Traders Today

Crude Oil Inventories is out at 10:30 AM EST. This could have an effect on the crude markets.
10-y Bond Auction starts at 1 PM EST. This could affect afternoon trading.
FOMC Meeting Minutes is out at 2 PM EST. This will affect afternoon trading.
ECB President Draghi Speaks at 2:30 PM EST. This could affect afternoon trading.


Currencies

Yesterday the Swiss Franc made it’s move at 9:30 AM EST prior to the Jolts Job Opening numbers. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at 9:30 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a high at 9:30 AM EST and the Swiss Franc hit a low. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted 15-20 ticks on that trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.


Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Click on an image to enlarge it.





Bias

Yesterday we said our bias was to the downside as both the USD and the Bonds were both trading higher. The markets didn’t disappoint as the Dow dropped 117 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is neutral. A neutral bias means the markets could go in any direction.

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

Commentary

Yesterday the Jolts Job Opening numbers was released that beat expectation; coming in at 4.64 million versus 4.53 million expected. You would think that the markets would greet this as positive news and move forward. No, the markets dropped again on positive news. Wondering why this didn’t happen last Thursday when the Non-Farm Payrolls was released? I have my own theory. The Smart Money aka institutionals didn’t want to go into a 3 day holiday weekend on a sour note, so they drove market higher on Thursday only to sell off Monday and Tuesday. Another factor with this report is was released relatively close to the FOMC Meeting Minutes which will be out later today.

In other news Alcoa (AA) released quarterly earnings that were positive. They reported earnings of 12 cents a share versus a year ago loss of 11 cents per share. We’ll now have to see how the markets react to this news.