The Return of Window Dressing?

Good Morning Traders,

As of this writing 4:01 AM EST, here’s what we see:

US Dollar: Up at 85.720, the US Dollar is up 4 ticks and is trading at 85.720.
Energies: November Crude is up at 94.66.
Financials: The Dec 30 year bond is down 3 ticks and trading at 138.07.
Indices: The Dec S&P 500 emini ES contract is up 10 ticks and trading at 1972.00.
Gold: The October gold contract is trading down at 1215.10 and is down 24 ticks from its close. Initial Conclusion

This is not a 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.

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

Possible Challenges To Traders Today

1. S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is not major.

2. Chicago PMI is out at 9:45 AM EST. This is major.

3. CB Consumer Confidence is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:05 AM EST after the economic news was reported. 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 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 9:05 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 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.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we said our bias was to the downside as the markets were nearly correlated in that direction.  The Dow dropped 42 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 our bias was to the downside as the markets were nearly correlated in that direction.  The rules of Market Correlation did no let us down as the Dow dropped as well as the other indices.  The question for today we will see the return of window dressing?  Window dressing was a phenomena we used to see in the 1990′s as the Smart Money or fund managers would artificially bump up the shares of certain stocks in their portfolio.  In my opinion we may not see this situation occur today as both the Dow and S&P have already hit all time highs this quarter.  Ironically both occurred earlier this month at around the same time.  So I’m not too clear that this will happen again but as we always say “anything can happen in a volatile market.”  Yesterday Pending Home Sales did not meet expectation which in turn caused the market to depreciate.  These are homes that are under contract to close but haven’t as yet.  Today we have Chicago PMI and Consumer Confidence both of which are major and proven market movers….