Geopolitics Drive Markets Lower

Good Morning Traders,

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

US Dollar: Up at 80.785, the US Dollar is up 158 ticks and is trading at 80.785.
Energies: September Crude is up at 103.17.
Financials: The Sept 30 year bond is down 4 ticks and trading at 138.10.
Indices: The Sept S&P 500 emini ES contract is up 17 ticks and trading at 1970.50.
Gold: The August gold contract is trading down at 1307.80 and is down 60 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is up+ and oil 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 up and the US dollar is trading up which is not correlated. Gold is trading lower which is 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 higher. As of this writing all of Europe is trading is trading higher.

Possible Challenges To Traders Today

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

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

3. HPI m/m is out at 9 AM EST. This is major.

4. Existing Home Sales is out at 10 AM EST. This is major.

5. Richmond Manufacturing Index is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made its move at 9:05 AM EST with no economic news in sight. 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 9:05 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 8:40 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 about 10 ticks on the trade as the market wasn’t giving much yesterday. 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 to the downside as Europe was trading lower and the financials were correlated to the downside. The Dow dropped 48 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.

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

Commentary

Yesterday we said the markets would go lower and they have. The Dow dropped 48 points and the other indices lost ground as well. With no economic news to drive it higher the markets were focused on geopolitical events. The Russian-Ukraine situation as well as the Gaza Strip. Thus far the US is talking and complaining but no military action is forthcoming. In the Gaza Strip, Hamas was celebrating the capture of one (yes, one) Israeli solider. Can you imagine if they captured two? The world is furious with Russia as they don’t seem to have the ability to control the pro-Russian rebels in the Ukraine. The rebels have moved more than half of the bodies found to railroad cars and are storing them. There is also reports that they are ransacking the personal belongs of the slain passengers. In the civilized world today this is considered barbaric as the ancient barbarians would have done such a thing. The Western Powers need to be careful when dealing with these “rebels” as they have no regard for human beings.