Yellen Talks, Markets Listen

Good Morning Traders,

As of this writing 4:05 AM EST, here’s what we see:

US Dollar: Up at 84.660, the US Dollar is up 184 ticks and is trading at 84.660.
Energies: November Crude is down at 93.00.
Financials: The Dec 30 year bond is up 6 ticks and trading at 136.04.
Indices: The Dec S&P 500 emini ES contract is up 5 ticks and trading at 1995.00.
Gold: The October gold contract is trading down at 1223.30 and is down 116 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 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.

Asia traded mainly higher with the exception of the Aussie and Hang Seng exchanges which traded lower. As of this writing Europe is trading mainly higher with the exception of the London and Milan exchanges which are trading lower at this hour.

Possible Challenges To Traders Today

1. Building Permits are out at 8:30 AM EST. This is major.

2. Unemployment Claims are out at 8:30 AM EST. This is major.

3. Housing Starts are out at 8:30 AM EST. This is major.

4. Yellen Speaks at 8:45 AM EST. This is major.

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

6. Natural Gas Storage is out at 10:30 AM EST. This could move teh Nat Gas market.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:45 AM EST after the CPI numbers came out. 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 around 8:45 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 8:45 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 20 plus ticks on this trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies. Please note that the front month for both instruments is now December.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we said our bias was neutral as it was FOMC Day. The markets closed higher as the Dow gained 25 points and the other indices gained as well. Today we aren’t dealing with a correlated market and our bias is neutral.

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

Commentary

Yesterday we said our bias was neutral as it was FOMC Day and our subscribers know that we always maintain a neutral bias on that day. As we said yesterday the Fed isn’t too keen on hiking rates any time soon as they left “considerable time” in their statement. Yellen also conducted a press conference afterwards and wouldn’t budge on when the Fed will hike rates although most people believe it will be mid-2015. Time will tell if this is correct. Janet Yellen also speaks today at 8:45 AM EST and may once again move the markets. Today we also have Scotland voting to either stay in the UK or become an independent nation, no doubt this will impact the British pound.