Yellenspeak Doesn't Help

Good Morning Traders,

As of this writing 4:35 AM EST, here’s what we see:

US Dollar: Down at 97.935 the US Dollar is down 94 ticks and trading at 97.935.
Energies: December Crude is up at 46.54.
Financials: The Dec 30 year bond is down 9 ticks and trading at 154.13.
Indices: The Dec S&P 500 emini ES contract is up 7 ticks and trading at 2096.50.
Gold: The December gold contract is trading up at 1108.60. Gold is 24 ticks higher than its close.

Initial Conclusion

This is a not a correlated market. The dollar is down- and crude is up+ which is normal and 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 Crude is trading up which is not correlated. Gold is trading up which is correlated with the US dollar trading down. 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 Nikkei and Shanghai exchanges which traded higher. As of this writing all of Europe is trading lower with the exception of the Paris exchange which is fractionally higher.

Possible Challenges To Traders Today

- Challenger Job Cuts y/y is out at 7:30 AM EST. This is major.

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

- FOMC Member Dudley Speaks at 8:30 AM EST. This is major.

- Prelim Nonfarm Productivity q/q is out at 8:30 AM EST. This is not major.

- Prelim Unit Labor Costs q/q is out at 8:30 AM EST. This is major.

- FOMC Member Fischer Speaks at 9:10 AM EST. This is major.

- Nat Gas Supplies are out at 10:30 AM EST. This can move the Nat Gas markets.

- FOMC Member Lockhart Speaks at 1:30 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:15 AM EST before all the 8:30 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 8:15 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 11 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 NinjaTrader platform

Bias

Yesterday we said our bias was neutral as all the instruments we track gave no indication as to direction. A neutral bias means the markets could go in any direction and yesterday they did. First up, then down. The Dow dropped 50 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 morning Janet Yellen gave her testimony before the House Financial Services committee and I don’t think I’ve ever since a DC committee more willing to trip up a witness. It was almost as if Janet Yellen was guilty before being proven innocent. She didn’t help herself much by first proclaiming “it may be appropriate to raise rates next month” and then in the same breath state “no decision has been made on whether to hike in December”. Admittedly this committee probably had freshmen members who aren’t too savvy on Fedspeak. The Fed will never tell you what they’re going to do before they do it. They’ll do it first and explain later; which is why they have press conferences after making major decisions. If yesterday’s Auto Sales are any indication, the Fed probably won’t raise in December. In all likelihood they’ll want to see an entire calendar year’ worth of data and they won’t be able to do that in 2015. Will it happen in 2016? Stay tuned….