Yellen Fails to Wow Markets

Good Morning Traders,

As of this writing 5:30 AM EST, here’s what we see:

US Dollar: Up at 80.550, the US Dollar is up 104 ticks and is trading at 80.550.
Energies: Aug Oil is up at 100.78.
Financials: The Sept 30 year bond is up 6 ticks and trading at 137.04.
Indices: The Sept S&P 500 emini ES contract is up 21 ticks and trading at 1973.25.
Gold: The August gold contract is trading up at 1298.50 and is up 13 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is up+ and oil is up+ 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 higher and the US dollar is trading up which is not 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.

Asia traded mainly higher with the exception of the Nikkei and Shanghai exchanges which traded lower. As of this writing all of Europe is trading is trading lower.

Possible Challenges To Traders Today

1. PPI m/m is out at 8:30 AM EST. This is major.

2. Core PPI m/m is out at 8:30 AM EST. This is major.

3. TIC Long-Term Purchases is out at 9 AM EST. This is not major.

4. Capacity Utilization Rate is out at 9:15 AM EST. This is not major.

5. Industrial Production m/m is out at 9:15 AM EST. This is not major.

6. Fed Chair Yellen Testifies at 10 AM EST. This is major.

7. NAHB Housing Market Index is out at 10 AM EST. This is major.

8. Crude Oil Inventories is out at 10:30 AM EST. This could move the crude market.

9. FOMC Member Fisher Speaks at 12 PM. This is major.

10. Beige Book is out at 2 PM EST. This could affect afternoon trading.

Currencies

Yesterday the Swiss Franc made its move at 8:35 AM EST after the Retail Sales numbers were released. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at 8:35 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 low at 8:35 AM EST and the Swiss Franc hit a high. 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

Bias

Yesterday we said our bias was neutral which means the markets could go in any direction. The Dow gained a paltry 6 points but the other indices lost ground. Today we aren’t dealing with a correlated market and will maintain a neutral bias (members watch the Market Bias video for an in-depth explanation).

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

Commentary

Yesterday we said our bias was neutral which means the markets could go in any direction and in fact they did. In our Market Bias video yesterday we stated that ordinarily our bias would be to the downside as the Financials (USD and Bonds) were trading higher, Europe was trading lower and Gold was trading much higher. Readers of this newsletter knew this at 6 AM. How did we know that? Our rules of market correlation told us so. Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools.