And Thursday Makes Three

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Up at 97.560 the US Dollar is up 334 ticks and trading at 97.560.

Energies: September Crude is up at 48.74.

Financials: The Sept 30 year bond is up 5 ticks and trading at 154.20.
Indices: The Sept S&P 500 emini ES contract is up 13 ticks and trading at 2101.75.

Gold: The August gold contract is trading down at 1082.60 Gold is 115 ticks lower than its close.

Initial Conclusion

This is not a 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 up and Crude is trading up which is not correlated. Gold is trading down 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 lower. As of this writing Europe is trading higher with the exception of the Spanish IBEX exchange which is trading fractionally lower.

Possible Challenges To Traders Today

- Flash Manufacturing PMI is out at 9:45 AM EST. This is major.

- New Home Sales is out at 10 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move around 8:35 AM EST after the Unemployment Claims numbers 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 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 around 8:35 AM EST and the Swiss Franc hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted about 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. 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 Ninja Trader platform

Bias

Yesterday we said our bias was neutral as we didn’t see follow thru on the indices. The Dow closed down 119 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and will maintain our neutral bias.

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

Commentary

Yesterday our bias was neutral and for those of you who are new to Market Tea Leaves a neutral bias means the markets could go in any direction. The Dow lost 119 points and the other indices lost ground as well despite the fact that Unemployment Claims came in lower than expected and the leading index indicator was up. So you might be asking “how could it be that we have good economic news but the market falls”? The answer is that the good economic news gives fuel to the Fed for raising interest rates. The real reason the Fed may raise? If the US economy should suffer a setback they will need ammo to fight with and that ammo is the ability to lower rates. You can’t lower rates at zero. Yesterday’s action only confirms our rules of market correlation.